IRS 2013 BUDGET

Continuing to Improve 

Information on 

Program Costs and 

Results Could Aid in 

Resource Decision 

Making

Report to Congressional Committees

June 2012

GAO-12-603

United States Government Accountability Office

GAO
Page i GAO-12-603 IRS 2013 Budget

Letter 1 

Conclusions 4

Recommendations for Executive Action 5

Agency Comments and Our Evaluation 5

Appendix I Briefing Slides 7

Appendix II Comments from the Internal Revenue Service 47

Appendix III Reliability of Patient Protection and Affordable Care Act Cost Estimate 48

Appendix IV Description of the Internal Revenue Service’s Major Information 

Technology Investments 60

Appendix V Major Information Technology Investments with Significant Cost and 

Schedule Variances 62

Appendix VI GAO Products with Open Matters for Congress and Recommendations to 

the IRS Regarding Tax Administration 68

Appendix VII GAO Contact and Staff Acknowledgments 71

Tables

Table 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns 

with Best Practices Outlined in the GAO Cost Guide 53

Table 2: The Internal Revenue Service’s 20 Major Information 

Technology Investments 60

Table 3: Cost and Schedule Performance Information for 

Affordable Care Act Administration 62

Contents
Page ii GAO-12-603 IRS 2013 Budget

Table 4: Cost and Schedule Performance Information for Current 

Customer Account Data Engine 63

Table 5: Cost and Schedule Performance Information for 

Integrated Customer Communication Environment 64

Table 6: Cost and Schedule Performance Information for 

Integrated Submission and Remittance Processing System 65

Table 7: Cost and Schedule Performance Information for IRS Main 

Frames and Servers Services and Support 66

Table 8: Cost and Schedule Performance Information for 

Modernized e-File 67

Table 9: List of Open Matters for Congress and Recommendations 

to IRS That Could Result In Potential Savings or Increased 

Revenues 68

 

Figures

Figure 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns 

with the Best Practices for Comprehensiveness 49

Figure 2: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns 

with the Best Practices for Being Well Documented 50

Figure 3: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns 

with the Best Practices for Accuracy 51

Figure 4: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns 

with the Best Practices for Credibility 52

Abbreviations 

ACA Affordable Care Act

AMS Account Management Services

AUR Automated Underreporter Program

BSM Business Systems Modernization

CADE Customer Account Data Engine

CFO Chief Financial Officer

CI Criminal Investigation

CIO Chief Information Officer

e-SVS e-Services

EFDS Electronic Fraud Detection System

EPO Estimation Program Office

EUSS IRS End User Systems and Services

EVM earned value management

FATCA Foreign Account Tax Compliance Act
Page iii GAO-12-603 IRS 2013 Budget

FTE full-time equivalent

HHS Department of Health and Human Services

HIRIF Health Insurance Reform Implementation Fund

HITCA Health Insurance Tax Credit Administration

IMF Individual Master File

ICCE Integrated Customer Communication Environment

IDRS Integrated Data Retrieval System

IFS Integrated Financial System

IRDM Information Reporting and Document Matching

IRS Internal Revenue Service

ISRP Integrated Submission and Remittance Processing 

IT information technology

MeF Modernized e-File

MISSTU Modernized Infrastructure Solaris 10 & Supporting

 Technologies Upgrade 

MITS Modernization and Information Technology Services

MSSS IRS Main Frames and Servers Services and Support

OMB Office of Management and Budget

PPACA Patient Protection and Affordable Care Act

ROI return on investment

RRP Return Review Program

SAN Storage Area Network

SCRIPS Service Center Recognition/Image Processing System

Treasury Department of the Treasury

TSS IRS Telecommunications Systems and Support

WBS work breakdown structure

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Page 1 GAO-12-603 IRS 2013 Budget

United States Government Accountability Office

Washington, DC 20548

June 8, 2012

The Honorable Richard J. Durbin

Chairman

The Honorable Jerry Moran

Ranking Member

Subcommittee on Financial Services and General Government

Committee on Appropriations

United States Senate

The Honorable Charles W. Boustany, Jr.

Chairman

The Honorable John Lewis

Ranking Member

Subcommittee on Oversight

Committee on Ways and Means

United States House of Representatives

This letter transmits several briefings we provided between February 27, 

2012 and May 16, 2012, as well as subsequent comments from the 

Internal Revenue Service (IRS). See appendix I for the final, updated 

briefing.

The President requested $12.8 billion for IRS for fiscal year 2013. This is 

an 8 percent increase over the enacted appropriation for fiscal year 2012, 

and follows a 2.5 percent decrease between fiscal year 2011 and fiscal 

year 2012. 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 2013 budget justification for IRS as well as how it 

absorbed the prior year’s reductions. Based on discussions with your 

offices, our objectives were to: (1) describe how IRS managed funding 

reductions in fiscal year 2012; (2) describe the fiscal year 2013 budget 

request for IRS and budget and staffing trends from fiscal year 2009 

through fiscal year 2013; (3) evaluate any new enforcement and 

infrastructure initiatives in the fiscal year 2013 budget request, including 

whether return on investment (ROI) estimates are provided; (4) evaluate 

the reliability of IRS’s cost estimate for implementing its responsibilities 

 
 

Page 2 GAO-12-603 IRS 2013 Budget

under the Patient Protection and Affordable Care Act (PPACA);

1

To conduct this work, we addressed the first three objectives by reviewing 

IRS’s plans to manage budget reductions and examining trends in 

selected performance measures since 2007, identifying prior GAO work 

that could increase efficiencies, and comparing and analyzing budget 

documentation from fiscal year 2008 through fiscal year 2013. We 

compared the reliability of the PPACA cost estimate with best practices 

outlined in the GAO Cost Estimating and Assessment Guide

(5) 

evaluate the amount requested for hiring additional staff in fiscal year 

2013; (6) evaluate the performance of IRS’s major information technology 

(IT) investments; (7) list any analyses we have done related to legislative 

proposals included in the budget request for IRS; and (8) describe IRS’s 

progress implementing our prior budget presentation recommendations 

and list our open matters for Congress and recommendations to IRS

regarding tax administration with potential budget savings or revenue 

increases.

2

 (Cost 

Guide) using documents, such as work breakdown structures (WBS), and 

interviewing IRS PPACA officials. We reviewed cost estimates for PPACA

implementation based on your interest and because it represented the 

largest requested increase in the budget proposal. To evaluate the 

amount requested for hiring additional staff in fiscal year 2013, we 

compared Office of Management and Budget (OMB) Circular A-11

guidance with IRS’s budgeting practices for funding the hiring of new 

staff. We reviewed IRS’s recent hiring patterns and calculated the 

percentage of staff hired in each quarter for new initiatives in fiscal year 

2009 and fiscal year 2010. We used a $100,000/full-time equivalent 

(FTE)3

 

1

IRS is one of several agencies charged with implementing PPACA, legislation aimed at 

reforming the private insurance market and expanding health coverage to the uninsured. 

IRS is responsible for implementing PPACA provisions relating to, among other things, 

new taxes, tax credits, and information reporting requirements. Pub. L. No. 111-148, 124 

Stat.119 (March 23, 2010), as amended by the Health Care and Education Reconciliation 

Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010). 

value for salary and benefits, which IRS officials told us they 

commonly use as an approximate cost per FTE, and compared it with the 

budget request to determine differences. We reviewed reported cost and 

2

GAO, Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009).

3

A FTE is a measure of staff hours equal to those of an employee who works 2,080 hours 

per year, or 40 hours per week for 52 weeks.
 

Page 3 GAO-12-603 IRS 2013 Budget

schedule information and Chief Information Officer (CIO) assessments for 

all IRS major IT investments and interviewed officials in the Modernization 

and Information Technology Services (MITS) office. We also reviewed 

legislative proposals in the budget justification and identified prior, related 

GAO work. Finally, we obtained information on prior-year budget 

recommendations from various IRS officials and reviewed relevant 

documentation, including the fiscal year 2013 Congressional Budget 

Justification, to determine which recommendations were implemented 

and we relied on prior work and examined open matters and 

recommendations with a potential to increase savings or revenues. For 

each objective, we interviewed IRS officials in the offices of the Chief 

Financial Officer (CFO) and Corporate Budgeting. We conducted our 

work in Washington, D.C., where key IRS officials involved with the 

budget and IT systems are located.

We conducted this performance audit from November 2011 to June 2012 

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. We spoke with IRS officials 

and reviewed data collection procedures and determined that the data 

used in this report were sufficiently reliable for our purposes.

The results of our work show:

• IRS absorbed the 2.5 percent or $305 million fiscal year 2012 

reduction by decreasing FTEs and other costs, primarily in the 

Enforcement and Operations Support appropriations. Several of our 

recent reports show that other opportunities exist to increase 

efficiencies through, for example, automating some services, 

leveraging paid tax return preparers, and conducting more compliance 

checks before issuing refunds.

• IRS’s fiscal year 2013 budget request represents a $944.5 million (8.0 

percent) and about a 4,500 FTEs (5.0 percent) increase over fiscal 

year 2012.

• Seven of the 12 proposed new program initiatives ($603.1 million) are 

supported by ROI estimates; the others ($303.9 million) are not 

supported by ROI information or, for the 2 we reviewed, other similar 

economic assessments, such as cost effectiveness analyses.

• IRS’s PPACA cost estimate partially meets best practices for 

reliability, but it has not been updated since October 2010.
 

Page 4 GAO-12-603 IRS 2013 Budget

• IRS budgets for hiring new staff based on the new staff being onboard for the full fiscal year. But, in recent years, IRS hired most new 

staff late in the fiscal year, which could have resulted in funding being 

used for other purposes that are not described or substantiated in the 

budget justification.

• Fourteen of 20 major IT investments were within 10 percent of cost 

and schedule estimates between October 2011 and March 2012, but 

we could not determine whether these investments delivered planned 

functionality because IRS does not have a quantitative measure of 

scope for major IT investments.

• We have conducted analyses related to 6 of the 22 legislative 

proposals included in the budget request for IRS.

• IRS at least partially implemented 5 of our 9 prior recommendations 

intended to improve information presented in the budget request; in 

addition, we have 106 other matters for Congress or 

recommendations to IRS regarding tax administration that remain 

open and could result in potential financial benefits, either budget 

savings or increases in tax revenue.

We have identified several areas where budget decision makers lack 

information that would be helpful in making decisions about resource 

trade-offs at IRS.

• Unlike most enforcement initiatives that IRS now justifies with ROI 

estimates, non-enforcement investment initiatives are not justified with 

similar economic analyses, such as cost-effectiveness analyses. 

When comparisons of alternative investments for accomplishing a 

goal do not consider costs, budget decision makers cannot be 

assured that alternatives were fully evaluated and that the best 

alternative was selected.

• Without a timely, updated cost estimate for PPACA, budget decision 

makers will not know the fraction of the multi-year effort being funded 

in fiscal year 2013 or the subsequent remaining costs.

• Because the budget request for hiring new staff is not based on 

expected hiring dates, but instead assumes hiring will occur at the 

beginning of the fiscal year, some funds will be available for other 

uses, which are not described or substantiated in the budget request.

• Although IRS tracks the schedule and cost performance of IT 

investments, it does not have a quantitative measure to determine 

whether it is delivering planned functionality. Without this measure, 

budget decision makers lack complete information about IRS’s 

performance in managing IT investment projects.

Conclusions 
 

Page 5 GAO-12-603 IRS 2013 Budget

To continue to improve information on program cost and results that could 

aid in resource decision making, we recommend that the Commissioner 

of Internal Revenue

• ensure cost-effectiveness analyses are conducted for future 

significant investments when there are alternative approaches for 

achieving a given benefit, such as for any new significant PPACA 

projects;

• ensure that an updated PPACA cost estimate is completed by 

September 2012 in accordance with best practices in the GAO Cost 

Guide;

• prepare funding requests for new staff based on estimated hiring 

dates; and

• develop a quantitative measure of scope, at a minimum for its major 

IT investments, to have complete information on the performance of 

these investments.

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

Revenue for his review and comment. The CFO provided written 

comments as an email attachment, which is reprinted in appendix II. IRS 

also provided us with technical comments, which we incorporated into the 

report as appropriate.

In response to our draft report, the CFO stated that IRS agreed with three 

of our four recommendations. 

• For the two recommendations regarding PPACA, IRS agreed with 

them, but stated our report did not acknowledge that the majority 

of the funding is to support ongoing efforts and for staff already on 

board in fiscal year 2012. On the contrary, our report describes in 

detail (in the background, in the section on fiscal year 2012 

funding reductions, and in the section on fiscal year 2013 budget 

data and trends) the funding IRS received from the Health 

Insurance Reform Implementation Fund in fiscal years 2010, 2011 

and 2012, including FTEs funded in prior years.

• IRS agreed with our recommendation to develop a quantitative 

measure of scope, but the CFO stated that IRS has other methods 

in place to document delivered functionality of a project throughout 

the life-cycle. We agree that the methods identified address 

project functionality, but they do not provide a quantitative 

measure of performance. 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 6 GAO-12-603 IRS 2013 Budget

• IRS did not agree with our recommendation to prepare funding 

requests for new staff based on estimated hiring dates. The CFO 

stated that IRS is committed to transparency in spending though 

the submission of the annual Operating Plan and requests to 

reprogram funds as a result of the late enactment of the budget or 

delayed hiring of new staff. Our report emphasizes transparency 

in the budget request and discusses the issues raised in the 

CFO’s letter. Transparency in the budget request is critical for 

Congressional oversight and decision making. IRS’s current 

approach for budgeting for hiring new staff could result in 

substantial funding—about $300 million in fiscal year 2013— that 

could be used for other purposes that are not substantiated or 

described in the budget justification. We therefore believe our 

recommendation remains valid.

We plan to send 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. 

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

Secretary of the Treasury, the Chairman of the IRS Oversight Board, and 

the Director of the Office of Management and Budget. Copies are also 

available at no charge on the GAO web site at http://www.gao.gov.

If you or your staffs have any questions or wish to discuss the material in 

this report further, please contact me at (202) 512-9110 or 

whitej@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 

members who made major contributions to this report are listed in 

appendix VII. 

James R. White

Director, Tax Issues

Strategic Issues
Appendix I: Briefing Slides

Page 7 GAO-12-603 IRS 2013 Budget

Appendix I: Briefing Slides

IRS 2013 Budget:

Continuing to Improve Information on 

Program Costs and Results Could Aid in 

Resource Decision Making

Prepared for the Subcommittee on Financial Services 

and General Government, Committee on 

Appropriations, U.S. Senate (May 15, 2012)

and the

Subcommittee on Oversight, Committee on Ways and 

Means, U.S. House of Representatives (May 16, 2012)

Updated (June 6, 2012)
Appendix I: Briefing Slides

Page 8 GAO-12-603 IRS 2013 Budget

Introduction

• The President requested $12.8 billion for the Internal Revenue Service 

(IRS) for fiscal year 2013. This is an 8 percent increase over the 

enacted appropriation for fiscal year 2012, and follows a 2.5 percent 

decrease between fiscal year 2011 and fiscal year 2012.

• 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 2013 budget justification for IRS as well as how it absorbed 

fiscal year 2012 reductions. Other special areas of interest include an 

evaluation of the cost estimates for the Patient Protection and 

Affordable Care Act (PPACA)1 initiatives and budgeting practices for 

funding the hiring of new staff.

Page 2

1IRS is one of several agencies charged with implementing PPACA, legislation aimed at reforming the private insurance market and expanding health coverage to the uninsured. IRS 

is responsible for implementing PPACA provisions relating to, among other things, new taxes, tax credits, and information reporting requirements. Pub. L. No. 111-148, 124 Stat.119 

(Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).
Appendix I: Briefing Slides

Page 9 GAO-12-603 IRS 2013 Budget

Objectives

Based on your request, our objectives were to:

(1) describe how IRS managed funding reductions in fiscal year 2012; 

(2) describe the fiscal year 2013 budget request for IRS and budget and staffing trends 

from fiscal year 2009 through fiscal year 2013; 

(3) evaluate any new enforcement and infrastructure initiatives in the fiscal year 2013 

budget request, including whether return on investment (ROI) estimates are 

provided;

(4) evaluate the reliability of IRS’s cost estimate for implementing its responsibilities 

under the PPACA;

(5) evaluate the amount requested for hiring additional staff in fiscal year 2013; 

(6) evaluate the performance of IRS’s major information technology (IT) investments;

(7) list any analyses we have done related to legislative proposals included in the budget 

request for IRS; and 

(8) describe IRS’s progress implementing our prior budget presentation 

recommendations and list our open matters for Congress and recommendations to 

IRS regarding tax administration with potential budget savings or revenue increases.

Page 3
Appendix I: Briefing Slides

Page 10 GAO-12-603 IRS 2013 Budget

Scope and Methodology

• To conduct our review, we

• addressed the first three objectives by reviewing IRS’s plans to manage budget reductions 

and examining trends in selected performance measures since 2007; identifying prior GAO 

work that could increase efficiencies; and comparing and analyzing budget documentation 

from fiscal year 2008 through fiscal year 2013;

• compared the reliability of the cost estimates for PPACA with best practices outlined in the 

GAO Cost Guide1 using documents, such as work breakdown structures, and interviewing 

IRS PPACA officials; we reviewed cost estimates for PPACA implementation based on your 

interest and because it represented the largest requested increase in the budget request; 

• compared Office of Management and Budget (OMB) Circular A-11 guidance with IRS’s 

budgeting practices for funding the hiring of new staff; reviewed recent hiring patterns and 

calculated the percent of staff hired in each quarter for new initiatives in fiscal year 2009 and 

fiscal year 2010; we used a $100,000/full-time equivalent2 (FTE) value for salary and benefits, 

which IRS officials told us they commonly use as an approximate cost per FTE, and 

compared with the budget request to determine differences; 

• reviewed reported cost and schedule information and Department of the Treasury (Treasury) 

Chief Information Officer (CIO) assessments for all IRS major IT systems and interviewed 

officials in the Modernization and Information Technology Services (MITS) office;3

Page 4

1See GAO, Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009).

2A FTE is a measure of staff hours equal to those of an employee who works 2,080 hours per year, or 40 hours per week for 52 weeks. 3 Among other IT responsibilities, MITS has primary responsibility for managing and delivering IRS’s Business Systems Modernization program.
Appendix I: Briefing Slides

Page 11 GAO-12-603 IRS 2013 Budget

Scope and Methodology (continued)

• reviewed legislative proposals in the fiscal year 2013 Congressional Budget 

Justification and identified our prior related work; and

• obtained information on the status of prior year budget recommendations from 

various IRS officials and reviewed documentation, including the fiscal year 2013 

Congressional Budget Justification, to determine which recommendations were 

implemented; and we relied on prior work and examined open matters and 

recommendations with a potential to increase savings or revenues.

• For each objective we interviewed officials in the IRS offices of Chief Financial Officer 

(CFO) and Corporate Budgeting. We conducted our work in Washington, D.C., where 

key IRS officials involved with the budget and IT systems are located.

• We conducted this performance audit from November 2011 to June 2012 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. We spoke with IRS officials and reviewed 

data collection procedures and determined that the data presented in this report were 

sufficiently reliable for our purposes.

Page 5
Appendix I: Briefing Slides

Page 12 GAO-12-603 IRS 2013 Budget

Results in Brief

• IRS absorbed the 2.5 percent or $305 million fiscal year 2012 reduction by decreasing FTEs and other costs, 

primarily in the Enforcement and Operations Support appropriations, but opportunities to increase efficiencies 

and more strategically manage operations exist. 

• IRS’s fiscal year 2013 budget request represents a $944.5 million (8.0 percent) and about a 4,500 FTE (5.0 

percent) increase over fiscal year 2012.

• Seven of the 12 proposed new program initiatives ($603.1 million) are supported by ROI estimates; the 

others ($303.9 million) are not supported by ROI information or, for the 2 we reviewed, other similar 

economic assessments, such as cost-effectiveness analyses.

• IRS’s PPACA cost estimate partially meets best practices for reliability, but it has not been updated since 

October 2010. 

• IRS budgets for hiring new staff based on them being on-board for the full fiscal year. But, in recent years, it 

hired most new staff late in the fiscal year, which could have resulted in funding being used for other 

purposes that are not described or substantiated in the budget justification. 

• Fourteen of 20 major IT investments were within 10 percent of cost and schedule estimates between October 

2011 and March 2012, but we could not determine whether these investments delivered planned functionality 

because IRS does not have a quantitative measure of scope for major IT investments. 

• We have conducted analyses related to 6 of the 22 legislative proposals included in the budget request for 

IRS.

• IRS at least partially implemented 5 of our 9 prior recommendations intended to improve information 

presented in the budget request; in addition, we have 106 other matters for Congress or recommendations to 

IRS regarding tax administration that remain open and could result in potential financial benefits, either 

budget savings or increases in tax revenue.

Page 6
Appendix I: Briefing Slides

Page 13 GAO-12-603 IRS 2013 Budget

IRS’s Budget Presentation

Page 7

Figure 1: Three Levels of IRS’s Budget Presentation • IRS’s budget 

presentation has three 

levels—appropriations, 

budget activities, and 

program activities.

• Requested funding 

increases for new 

program initiatives, such 

as implementing tax 

legislative changes, may 

be included within 

multiple appropriations or 

budget activities. The 

budget justification does 

not link new initiatives to 

program activities.

Background

aThe BSM budget activity does not include any specific program activities.
Appendix I: Briefing Slides

Page 14 GAO-12-603 IRS 2013 Budget

Budget Process Timeline

Page 8

Figure 2: Timeline of IRS’s Fiscal Year 2013 Budget Process

Background

• IRS’s budget process begins about 18 months prior to the final submission and is guided by the 

IRS Commissioner, Deputy Commissioners, CFO, and Corporate Budget office.
Appendix I: Briefing Slides

Page 15 GAO-12-603 IRS 2013 Budget

IRS Funding for PPACA

• Congress passed PPACA1 in March 2010 to reform the private insurance 

market and expand health coverage to the uninsured. IRS is responsible for 

implementing new provisions including new taxes, tax credits, and information 

reporting requirements. 

• Subsequently, Congress established the Health Insurance Reform 

Implementation Fund (HIRIF)2 within the Department of Health and Human 

Services (HHS) for federal administrative expenses in carrying out PPACA.

• Congress appropriated $1 billion to the HIRIF. IRS was one of the agencies 

eligible to use this appropriation to fund PPACA implementation. 

• HHS provided $188.9 million/609 FTEs to IRS from HIRIF in fiscal year 

2010 ($20.7 million/33 FTEs) and fiscal year 2011 ($168.2 million/576 

FTEs).

Page 9

Background

1 Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010). 2 Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).
Appendix I: Briefing Slides

Page 16 GAO-12-603 IRS 2013 Budget

Fiscal Year 2012 Enacted IRS Appropriations Reduced 

by $305 Million (2.5 Percent) from Fiscal Year 2011

Page 10

Fiscal year 2011 

enacted

Fiscal year 2012 

enacted

Dollar change 

(percent change) 

fiscal year 2011 to fiscal 

year 2012

Enforcement $5,493 $5,299 -$194 (-3.5%)

Operations support 4,057 3,947 -109 (-2.7)

Taxpayer services 2,293 2,240 -54 (-2.3)

BSM 263 330 67 (25.4)

Health Insurance Tax Credit Administration (HITCA) 15 0a -15 (-100.0)

Total appropriated resources $12,122 $11,817 -$305 (-2.5%)

Table 1: Funding Reductions in IRS’s Appropriations between Fiscal Year 2011 and Fiscal Year 2012 (dollars in millions)

Source: Fiscal year 2013 Congressional Budget Justification for IRS. 

Note: Numbers may not add due to rounding. 

aIn fiscal year 2012, administrative resources for HITCA were moved to the Taxpayer Services appropriation under the Consolidated Appropriations Act, 2012 (Pub. L. No. 112-74). 

Fiscal Year 2012 Funding Reductions 

•Most fiscal year 2012 reductions (in terms of dollars) were in the Enforcement and Operations Support 

appropriations. 

•IRS requested $473.4 million (1,269 FTEs) for PPACA in fiscal year 2012, but it was not funded. 

Subsequently, IRS received $135.4 million from HIRIF through March 31, 2012. Officials anticipate 

requesting an additional $196.8 million, totaling $332.2 million (803 FTEs) from HIRIF for fiscal year 2012.
Appendix I: Briefing Slides

Page 17 GAO-12-603 IRS 2013 Budget

IRS Decreased FTEs and Other Costs, but Did Not Fully 

Implement GAO’s Recommendation to Systematically ReExamine Base Operations

• To manage the reductions to its appropriations, IRS: 

• Decreased FTEs by at least 3.4 percent1 from fiscal year 2011 through use of 

attrition, a hiring freeze, and targeted buyouts of more than 900 staff.

• After receiving HIRIF funding for staffing (227 FTEs), the net decrease in FTEs 

was 3.1 percent. 

• Reduced other costs through cuts to travel, training, consulting services, IT 

investments, and increased use of telework and video conferencing.

• IRS officials said they examined base operations at a high level, but did not provide us 

documentation of their analysis. IRS’s officials also said that spending reductions were 

focused on minimizing the impact on services to taxpayers and operations. 

• We previously recommended IRS expand efforts to systematically identify savings 

and efficiencies as part of its budget development process.2

• IRS may be missing opportunities to realize savings and efficiencies by not fully 

reviewing base operations.

Page 11 1Reduction in FTEs calculated from fiscal year 2011 actual and fiscal year 2012 enacted FTE levels.

2GAO, IRS Budget 2012: Extending Systematic Reviews of Spending Could Identify More Savings Over Time, GAO-11-547 (Washington, D.C.: Apr. 11, 2011).

Fiscal Year 2012 Funding Reductions 
Appendix I: Briefing Slides

Page 18 GAO-12-603 IRS 2013 Budget

Selected Measures Show Declines in Performance or 

Planned Targets for Some Taxpayer Service and 

Enforcement Activities Since Fiscal Year 2007

Page 12

Performance measure (in percent)

Fiscal year 

2007 

(actual) 

Fiscal year 

2008 

(actual) 

Fiscal year 

2009

(actual) 

Fiscal year 

2010

(actual) 

Fiscal year 

2011 

(actual) 

Fiscal year 

2012 

(planned

target)

Fiscal year 

2013 

(planned 

target)

Assistor calls –

Level of servicea 82.1 52.8 70.0 74.0 70.1 61.0 63.0

Tax law accuracyb 91.2 91.2 92.9 92.7 93.4 92.7 92.7

Account accuracyb 93.4 93.7 94.9 95.7 96.0 95.0 95.0

Examination coverage—individualc 1.0 1.0 1.0 1.1 1.1 1.0 1.0

Examination coverage—businessc

(assets > $10 million) 6.8 6.1 5.6 5.7 6.2 5.6 5.4

Collection coveraged 54.0 55.2 54.2 50.1 50.0 47.8 46.8

Source: Fiscal Year 2013 Congressional Budget Justification for IRS. 

aThe number of toll-free callers that speak to live IRS assistors divided by the total number of attempted calls. 

bAccuracy measures show how often customers receives the correct answer/solution to their inquiry from a live IRS assistor. 

cExamination coverage is the number of tax returns examined and closed during the current fiscal year divided by the number of returns for the preceding year. 

dCollection coverage measures the volume of collection work completed compared to the volume of collection work available. 

Table 2: Selected Taxpayer Service and Enforcement Measures for Fiscal Year 2007 through Fiscal Year 2013 

Fiscal Year 2012 Funding Reductions
Appendix I: Briefing Slides

Page 19 GAO-12-603 IRS 2013 Budget

IRS’s Telephone Level of Service in Fiscal Year 

2012 Has Decreased

• As of mid-April 2012, the telephone level of service1 was 68.3 percent, 

down 6.3 percentage points compared to the same period last year.

• At the enacted funding level, the planned target for fiscal year 2012 

is 61 percent, down from its target of 82 percent for fiscal year 

2008. 

• Hours assistors are available to answer calls decreased 20 percent from 

fiscal year 2011, from 15 hours to 12 hours per day. Average wait times 

to talk with an assistor during the same period increased from 9.9 

minutes to 15.8 minutes. 

• Abandoned, busy, and disconnected calls are up more than 26 percent 

during the same period in 2011 and are up almost 67 percent from the 

same period in 2008. 

Page 13

Fiscal Year 2012 Funding Reductions 

1Level of service is the number of toll-free callers that speak to live IRS assistors divided by the total number of attempted calls. 
Appendix I: Briefing Slides

Page 20 GAO-12-603 IRS 2013 Budget

New Tax Laws Increase IRS’s 

Responsibilities

• Several new laws could substantially increase IRS’s workload beginning in 2012; for 

example: 

• In fiscal year 2011, IRS received 1.8 billion information returns.1 Three new laws 

require (1) brokers to report the adjusted cost basis for certain securities and identify 

whether a gain or loss is short or long-term,2 (2) merchants to report the gross 

amount of income from payment card or third-party payment network transactions,3

and (3) foreign banks to provide information on taxpayer accounts via the Foreign 

Account Tax Compliance Act (FATCA).4 IRS’s fiscal year 2012 and fiscal year 2013 

information return projections increase to 2.5 billion and 2.6 billion, respectively.

• In addition to processing increased information reports, IRS will also have other 

responsibilities related to FATCA, such as identifying filers not complying with 

FATCA requirements and imposing tax penalties when necessary.

• For PPACA, IRS has several new responsibilities, such as administering new fees 

on drug manufacturers and health insurers, processing newly required reports, and 

reviewing the community benefit activities of tax-exempt hospitals, which they need 

to prepare for and implement over the next several years.

Page 14

Fiscal Year 2012 Funding Reductions

1Information returns are tax documents third parties are required to file to IRS that report certain transactions, such as interest earned from a bank account. 2Energy Improvement and Extension Act of 2008, Pub. L. No. 110-343, div. B, § 403, 122 Stat. 3765, 3854-3860 (Oct. 3, 2008).

3Housing Assistance Tax Act of 2008, Pub. L. No. 110-289, div. C, § 3091, 122 Stat. 2654, 2908-2911 (July 30, 2008). 4Hiring Incentives to Restore Employment Act, Pub. L. No. 111-147, title V, 124 Stat. 71, 97-117 (Mar. 18, 2010).
Appendix I: Briefing Slides

Page 21 GAO-12-603 IRS 2013 Budget

Opportunities Exist to Increase Efficiencies and 

More Strategically Manage Operations

• In recent reports, we highlighted opportunities for IRS to modify its current 

operations to improve taxpayer services and enforcement programs, which 

could aid IRS by providing savings over time. For example: 

• providing more automated services (GAO-12-176); 

• conducting more pre-refund compliance checks through broadening use of 

Math Error Authority (GAO-10-349, GAO-10-225);

• using data from new information returns effectively (GAO-11-557); 

• leveraging paid tax preparers (GAO-12-652T, GAO-11-336); and

• increasing availability of electronic data (GAO-12-33).

• These reports provide recommendations to increase efficiencies and manage 

operations more strategically. However, some may require upfront investments 

before the efficiencies can be fully realized. 

Page 15

Fiscal Year 2012 Funding Reductions 
Appendix I: Briefing Slides

Page 22 GAO-12-603 IRS 2013 Budget

Summary of Key Budget and FTE Data

• The fiscal year 2013 budget request proposes: 

• a $944.5 million (8.0 percent) increase over fiscal year 2012, with the 

Enforcement and Operations Support appropriations accounting for the 

largest increase. 

• The fiscal year 2013 request is an increase of 5.3 percent over fiscal year 

2011.

• Of the $944.5 million, $360.5 million is for PPACA-related implementation, 

to be funded from IRS’s appropriations. IRS officials expect the HIRIF 

funds will not available for use in fiscal year 2013. 

• a Taxpayer Service appropriation at about the same level as last year.

• IRS expects to gain savings and efficiencies from more electronically filed 

returns and other program reductions.

• a net increase of about 4,500 (5.0 percent) FTEs over fiscal year 2012.

• The largest requested increase for FTEs is for Enforcement.

• Of the 4,500 FTEs, 859 are for PPACA, including 803 FTEs which IRS 

officials told us were on-board and funded by HIRIF in fiscal year 2012.

Page 16

Fiscal Year 2013 Budget Data and Trends
Appendix I: Briefing Slides

Page 23 GAO-12-603 IRS 2013 Budget

Dollars by Appropriation Account, Fiscal Year 2008 

through Fiscal Year 2013

Page 17

Table 3: Fiscal Year 2008 through Fiscal Year 2012 Enacted and Fiscal Year 2013 Budget Request for IRS by Appropriation 

Account (dollars in millions)

Source: Fiscal Year 2010 through Fiscal Year 2013 Congressional Budget Justifications for IRS. 

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

aIn fiscal year 2012, administrative resources for HITCA were moved to the Taxpayer Services appropriation under the Consolidated Appropriations Act, 2012 (Pub. L. No. 112-

74). 

bOther resources available for obligation are estimated by IRS and not subject to the annual appropriations process.

cIRS received an additional $20.7 million in fiscal year 2010 and $168.2 million in fiscal year 2011 from HHS’s HIRIF fund to implement PPACA. In fiscal year 2012, IRS plans 

to request $332.2 million from HHS and had received $135.4 million through March 31, 2012. IRS officials do not anticipate requesting HHS funds in fiscal year 2013, and have 

requested $360.5 million through IRS’s appropriation for fiscal year 2013. 

Appropriation Account

Fiscal year 

2008 

enacted

Fiscal year 

2009 

enacted

Fiscal year 

2010 

enacted

Fiscal year 

2011 

enacted

Fiscal year 

2012 

enacted

Fiscal year 

2013 

requested

Dollar change 

fiscal year 2012 

enacted 

compared to 

fiscal year 2013 

requested

Percent change 

fiscal year 2012 

enacted 

compared to 

fiscal year 2013 

requested

Enforcement $4,780 $5,117 $5,504 $5,493 $5,299 $5,702 $403 7.59

Operations support 3,841 3,867 4,084 4,057 3,947 4,476 529 13.40

Taxpayer services 2,191 2,293 2,279 2,293 2,240 2,253 13 0.60

BSM 267 230 264 263 330 330 0 0.00

HITCA 15 15 16 15 -- a -- a -- a -- a

Subtotal 11,095 11,523 12,146 12,122 11,817 12,761 945 7.99

Other resources, such as user 

feesb 566 390 539 655 559 592 34 6.04

Total funding available for 

obligationc $11,661 $11,913 $12,686 $12,777 $12,375 $13,354 $979 7.91

Fiscal Year 2013 Budget Data and Trends
Appendix I: Briefing Slides

Page 24 GAO-12-603 IRS 2013 Budget

Staffing by Appropriation Account, Fiscal Year 2008 

through Fiscal Year 2013

Page 18

Table 4: Fiscal Year 2008 through Fiscal Year 2011 Actual, Fiscal Year 2012 Enacted, and Fiscal Year 2013 Requested FTEs by 

Appropriation Account 

Source: Fiscal Year 2008 through Fiscal Year 2013 Congressional Budget Justifications for IRS. 

aIRS reported both enacted and actual FTEs for fiscal year 2011 in the fiscal year 2013 Congressional Budget Justification. For purposes of this table, we reported actual amounts.

bThe administrative resources for HITCA were moved to the Taxpayer Services appropriation under the Consolidated Appropriations Act, 2012 (Pub. L. No. 112-74). 

cOther resources available for obligation are estimated by IRS and not subject to the annual appropriations process.

dIRS realized an additional 33 FTEs in fiscal year 2010, 576 FTEs in fiscal year 2011, and is projecting 227 more FTEs for fiscal year 2012, for a cumulative total of 803 FTEs to be 

funded from HIRIF, according to IRS officials. The budget for fiscal year 2013 requested an additional 56 FTEs to make the cumulative total 859 FTEs. For fiscal year 2013, the 

budget proposes to fund the entire 859 FTEs from IRS’s appropriation, and not HIRIF.

Appropriation

account

Fiscal year 

2008 actual

Fiscal year 

2009 actual

Fiscal year 

2010 actual

Fiscal year 

2011 

actuala

Fiscal year 

2012 

enacted

Fiscal year 

2013 

requested

FTE change fiscal 

year 2012 

enacted 

compared to 

fiscal year 2013 

requested

Percent change 

fiscal year 2012 

enacted 

compared to 

fiscal year 2013 

requested

Enforcement 46,431 47,361 50,400 49,920 47,586 51,583 3,997 8.40

Operations support 12,079 12,101 12,262 12,103 11,985 12,609 624 5.21

Taxpayer services 31,487 32,422 31,607 31,574 30,535 30,570 35 0.11

BSM 347 322 337 309 605 495 -110 -18.18

HITCAb 10 10 12 0 0 0 0 0

Subtotal 90,354 92,216 94,618 93,906 90,711 95,257 4,546 5.01

Other resources, such as user 

feesc 1,331 1,153 752 1,003 939 939 0 0

Total FTEs d 91,685 93,369 95,370 94,909 91,650 96,196 4,546 4.96

Fiscal Year 2013 Budget Data and Trends
Appendix I: Briefing Slides

Page 25 GAO-12-603 IRS 2013 Budget

Of the $945 Million Requested Increase, the Administration 

Proposed a Program Integrity Cap Adjustment for Increases in IRS 

Enforcement and Compliance Funding 

• Congress passes 

program integrity cap 

adjustments to allow 

additional funding above 

discretionary spending 

limits for certain 

activities that are 

expected to generate 

benefits that exceed 

cost.

• The Administration 

requested a cap 

adjustment of $691 

million for IRS in fiscal 

year 2013.

Page 19

Fiscal Year 2013 Budget Data and Trends

Figure 3: Breakdown of IRS Fiscal Year 2013 Requested Increase
Appendix I: Briefing Slides

Page 26 GAO-12-603 IRS 2013 Budget

Breakout of $945 Million Requested Increase

Description of new initiatives 

Fiscal year 

2013 

funding 

requested Subtotal Total

Total changes $1,015.3

New initiatives 906.9

Enforcement 

initiatives 

Restore audit and collection coverage to address individual tax compliance issues (Projected ROI: 

6.8 to 1. IRS’s ROI estimate is based on direct revenues collected and does not include revenue 

that may result from an increase in voluntary compliance.) 200.5

Implement tax law changes for Information Reporting and Document Matching (IRDM) and PPACA 

programs (Projected ROI: 3.5 to 1). 128.9

Promote offshore compliance (Projected ROI: 6.4 to 1). 110.7

Implement revenue protection strategy (Projected ROI: 1.9 to 1). 88.9

Other (improve international compliance, build out return preparer program, address appeals 

workload, leverage digital evidence, and implement uncertain tax position reporting requirements) 

(Unable to provide ROI because not all initiatives are revenue generating.) 102.9

Infrastructure 

initiatives

To implement PPACA-related IT and operational infrastructure to allow IRS to validate household 

income and determine the amount of advance payments of the tax credit. 275.1

Inflation adjustment 

and pay raises

Inflation adjustments for non-labor expenses such as rent, postage, and health benefits, in order to 

maintain current levels and a proposed pay raise of 0.5 percent. 108.4

Savings and 

efficiencies

Savings resulting from targeted program reductions ($59.7 million, e.g., using more online tools and 

IT contractual services), increased use of electronic filing of returns ($8.6 million), and reduced 

travel ($2.6 million). -70.9

Appropriation increase $944.5

Page 20

Table 5: Funding Requested for New Initiatives and Changes Due to Inflation, Pay Raises, and Savings and Efficiencies (dollars in millions)

Source: Fiscal Year 2013 Congressional Budget Justification for IRS.

Note: Numbers may not add due to rounding. 

Fiscal Year 2013 Budget Data and Trends
Appendix I: Briefing Slides

Page 27 GAO-12-603 IRS 2013 Budget

7 of the 12 Proposed New Enforcement 

Initiatives ($603.1 Million) Supported with ROIs1 

Page 21

New Initiatives and ROI

Implement IRDM (2015 ROI: 7.5 to 1) and PPACA 

(2015 ROI: 1.8 to 1). Related GAO work: GAO-12-

59, GAO-11-719, GAO-11-557.

Increases for audit and individual compliance 

programs, such as correspondence exams of 

refundable credits, the global high wealth strategy, 

two-dimensional barcoding, and document imaging. 

Related GAO work: GAO-12-33.

Address FATCA requirements, strengthen offshore 

enforcement, and develop related IT. Related GAO 

work: GAO-11-730, GAO-11-493, GAO-11-272, 

GAO-09-478T, GAO-08-99, GAO-08-778.

Figure 4: Implement Tax Legislative 

Changes

Figure 5: Restore Audit Coverage to 

Address Individual Tax Compliance

Figure 6: Promote Offshore Compliance

1IRS’s ROI calculations have limitations that reflect the challenges of estimating ROIs. For example, they do not include benefits of improved voluntary compliance. In addition, the 

"investment" or costs should ideally recognize not just IRS costs, but any costs borne by others. IRS's ROI estimates provide useful information but, given the limits of current data, are not 

complete estimates of benefits and costs.
Appendix I: Briefing Slides

Page 28 GAO-12-603 IRS 2013 Budget

Page 22

7 of the 12 Proposed New Enforcement Initiatives 

($603.1 Million) Supported with ROIs1 (continued)

New Initiatives and ROI

Figure 7: Implement Revenue Protection Strategy

Prevent erroneous refunds through four programs 

(return review, management taxpayer assurance, 

identity theft, and prisoner tax compliance) 

Related GAO work: GAO-11-721T, GAO-11-

691T, GAO-11-674T, GAO-09-882, GAO-02-363.

Figure 8: Restore Collection Coverage

Increases for collection coverage such as 

staffing for Automated Collection Systems, 

Offers in Compromise, and Accounts 

Management programs. Related GAO work: 

GAO-06-525.

1IRS’s ROI calculations have limitations that reflect the challenges of estimating ROIs. For example, they do not include benefits of improved voluntary compliance. In addition, the 

"investment" or costs should ideally recognize not just IRS costs, but any costs borne by others. IRS's ROI estimates provide useful information but, given the limits of current data, are not 

complete estimates of benefits and costs.
Appendix I: Briefing Slides

Page 29 GAO-12-603 IRS 2013 Budget

Page 23

7 of the 12 Proposed New Enforcement Initiatives 

($603.1 Million) Supported with ROIs1 (continued)

New Initiatives and ROI

Figure 9: Improve International Compliance Figure 10: Build Out Tax Return Preparer Program

Improve international tax compliance for business 

by adding specialist covering complex transactions, 

U.S. multinationals, transfer pricing issues, etc.

Related GAO work: GAO-11-730, GAO-11-493, 

GAO-09-934.

Enforce compliance, pursue fraud, educate preparers and 

enforce ethical standards. Related GAO work: GAO-11-868T, 

GAO-11-336, GAO-06-563T, GAO-03-610T, Podcast, 

“Regulation of Tax Preparation and Filing.”

1IRS’s ROI calculations have limitations that reflect the challenges of estimating ROIs. For example, they do not include benefits of improved voluntary compliance. In addition, the 

"investment" or costs should ideally recognize not just IRS costs, but any costs borne by others. IRS's ROI estimates provide useful information but, given the limits of current data, are not 

complete estimates of benefits and costs.
Appendix I: Briefing Slides

Page 30 GAO-12-603 IRS 2013 Budget

Some New Initiatives Were Not Supported by 

Economic Analysis 

Initiative Purpose (related GAO work)

Estimated fiscal year 

2013 cost (FTE) 

Basis of 

initiative

Implement IT and operational 

infrastructure to deliver PPACA

Develop new and modify/enhance of new and existing IT systems to 

administer the PPACA. (GAO-11-719) $266.9 (537) Mandated

Address appeals workload

Add 92 settlement officers and 40 appeals officers to handle rising appeals 

workload. 20.3 (132) IRS-initiated

Implement IT changes needed for 

individual coverage for PPACA

For contractor to develop IT, infrastructure, and systems to implement 

individual responsibility health coverage requirement of PPACA. (GAO-11-

719) 8.2 (0) Mandated

Leverage digital evidence for 

Criminal Investigation (CI)

Implement “virtual digital evidence processing environment” that will allow CI 

to expedite and improve analysis of electronic data and avoid travel costs. 4.5 (8) IRS-initiated

Implement uncertain tax position 

reporting requirements

Increase IRS capacity to provide guidance and certainty on areas of legal 

uncertainty for large business taxpayers, e.g., advanced pricing agreements 

and private letter rulings. 4.0 (20) IRS-initiated

Total $303.9 (697)

Page 24

• We examined 2 of the 5 new initiatives without ROIs, the ones pertaining to the PPACA 

mandate, which totaled $275.1 million. 

•IRS did not estimate ROIs for these 5 new initiatives because they do not generate 

enforcement revenue. However, IRS did not justify them with any other similar 

economic analyses, such as a cost-effectiveness analysis, which compares costs of 

alternative means of achieving the same benefit.

Table 6: Purpose and Related GAO Work, Estimated Cost, and Basis for New Initiatives without ROI (in millions)

Source: GAO analysis of IRS’s Fiscal Year 2013 Congressional Budget Justification for IRS.

New Initiatives and ROI
Appendix I: Briefing Slides

Page 31 GAO-12-603 IRS 2013 Budget

Alternatives to Implement PPACA Initiatives Considered, but 

Not Potential Costs

• At the time the PPACA mandate was imposed, IRS considered alternative approaches for 

implementing it, but did not consider the costs of the alternatives. The analyses did consider other 

factors, such as risk to the agency and time. We have previously reported on the need for IRS to 

conduct economic analyses.1

• Sound cost-effectiveness analyses demonstrate that different approaches were evaluated, 

according to OMB Circular A-94. They also provide assurance that the alternatives chosen were 

the most cost effective and, if not, why. A cost-effectiveness analysis is itself an investment, so the 

level of detail should be commensurate with the magnitude of the initiative. 

• Officials said they did not determine the costs of all PPACA alternatives. They said they normally 

develop cost estimates only for the alternative they plan to implement. 

• When comparisons of alternatives do not consider costs, budget decision makers cannot be 

assured that alternatives were fully evaluated and the best alternative, based on factors including 

cost, was selected. 

Page 25

New Initiatives and ROI

1GAO, Tax Debt Collection: IRS Could Improve Future Studies by Establishing Appropriate Guidance, GAO-10-963 (Washington, D.C.: Sept. 24, 2010). 
Appendix I: Briefing Slides

Page 32 GAO-12-603 IRS 2013 Budget

Page 26

PPACA Cost Estimate

• IRS developed a cost estimate for PPACA in October 2010. However, 

it did not fully meet best practices for a reliable cost estimate, 

including containing timely updates to ensure accuracy. We alerted 

IRS to this issue in June 2011. Since then, IRS has not updated its 

cost estimate (see appendix III for a full description of our assessment 

of IRS’s PPACA cost estimate).

• Cost estimates establish and defend budgets. They are integral to 

determining and communicating a realistic view of likely cost and 

schedule outcomes that can be used to plan the work necessary to 

develop, produce, install, and support a program. Best practices for a 

reliable cost estimate are outlined in our Cost Guide.

1 In particular, we 

note the importance of updated and timely cost estimates that are 

available to decision makers as early as possible. 

PPACA Cost Estimate Partially Met Best Practices for 

Reliability, but Has Not Been Updated Since 2010

1GAO-09-3SP
Appendix I: Briefing Slides

Page 33 GAO-12-603 IRS 2013 Budget

PPACA Cost Estimate Partially Met Best Practices for 

Reliability, but Has Not Been Updated Since 2010 

(continued)

• IRS officials told us cost estimates are updated after projects reach particular 

milestones. The last milestone for PPACA was reached in January 2012. IRS 

awarded a contract to update the PPACA cost estimate on April 26, 2012. The 

contract specifies that the updated cost estimate should follow GAO best 

practices for a comprehensive, well documented, accurate, and credible cost 

estimate. IRS officials expect that the updated cost estimate will be completed 

by August or September 2012. 

• Until the update is completed, budget decision makers may not have sufficient 

information to consider trade-offs for fiscal year 2013 budget deliberations. For 

example, they will not know the fraction of the multi-year PPACA effort being 

funded in fiscal year 2013 and therefore will not know the costs that remain to 

be funded in future years. 

Page 27

PPACA Cost Estimate
Appendix I: Briefing Slides

Page 34 GAO-12-603 IRS 2013 Budget

Budgeting Practices Could Result in Funding 

Being Used for Other Purposes

• IRS budgets for staff for new initiatives assuming an 

October 1 start date, but in recent years, it hired most 

new staff late in the fiscal year. During fiscal year 2009 

and fiscal year 2010, the last years IRS received new 

initiative funding, most new staff started in the 3rd or 4th

quarter, as shown in figure 11. 

• While partly due to the timing of enacted budgets, IRS’s 

hiring pattern is also due to practical limitations in hiring 

and training large numbers of staff. For example, IRS 

significantly planned and prepared for a large hiring wave 

in fiscal year 2009, when it brought on about 1,500 new 

employees in three waves over a 9 month period.1

• With congressional approval, IRS can use funding 

budgeted for new staff for other purposes within limits.2

• Based on recent hiring trends for new initiatives, we 

estimate about $300 million of planned funding for FTEs 

in fiscal year 2013 could be used for other purposes, 

subject to congressional approval, and are not described 

or substantiated in the budget. 

Page 28

Budgeting for New Staff

Figure 11: Actual Hiring for New Permanent Staff for New 

Initiatives by Quarter, Fiscal Year 2009 through Fiscal Year 

2010

1Treasury Inspector General for Tax Administration, Challenges Remain to Balance Revenue Officer Staffing With Attrition and Workload Demands, TIGTA 2011-30-039 

(Washington, D.C.: May 6, 2011).

2IRS can transfer funds between appropriations, but those transfers cannot exceed 5 percent of any appropriation or 3 percent of the Enforcement appropriation.
Appendix I: Briefing Slides

Page 35 GAO-12-603 IRS 2013 Budget

Budgeting Practices Could Result in Funding 

Being Used for Other Purposes (continued)

• We have previously reported that budgets should be transparent, meaning that are 

made clear, salient, and understandable to decision makers and the public.1 Budget 

transparency is critical for effective congressional oversight and decision making. OMB 

Circular A-11 suggests agencies consider delays in recruiting and hiring and actual 

compensable number of hours worked when budgeting for staff.

• According to IRS and OMB officials, there is an agreement between the two agencies 

dating from the 1990s that permits IRS to budget for new staff assuming full year costs. 

According to officials, this practice helps IRS ensure it has full funding available for the 

newly hired staff in the second year without the need to justify a budget increase and 

manage uncertainties due to delays in funding.

• Neither IRS nor OMB officials were able to provide us with written documentation of 

the agreement. OMB officials said that they commonly make informal, oral 

agreements with agencies as part of the budget process and that Circular A-11 

allows for some flexibility. 

• Providing substantiation that fully identified planned uses for funding that result from 

hiring later in the year could increase transparency and aid Congress in making difficult 

resource decisions. 

Page 29

Budgeting for New Staff

1GAO, Internal Revenue Service: Assessment of Budget Justification for Fiscal Year 2011 Identified Opportunities to Enhance Transparency, GAO-10-687R

(Washington, D.C.: May 26, 2010), and GAO, Budget Issues: Budgeting for Federal Insurance Programs, GAO/T-AIMD-98-147 (Washington, D.C.: April 23, 1998).
Appendix I: Briefing Slides

Page 36 GAO-12-603 IRS 2013 Budget

IT Is About 20 Percent of IRS’s Fiscal Year 2013 

Budget Request

• IRS requested about $2.5 billion for IT for fiscal year 2013—$330 million for 

BSM and $2.14 billion for other investments. 

• Of the $2.5 billion requested, 

• $1.6 billion is planned to fund 18 major investments1 and 

• $900 million is planned to fund 125 non-major investments. 

• For fiscal year 2012, IRS has 20 major IT investments2 for which cost and 

schedule information and Treasury CIO ratings are reported to OMB on a 

monthly basis (see appendix IV for a description of the major investments). The 

CIO's evaluation is based on a number of factors to forecast the future success 

of the investment. 

Page 30

1According to IRS, major investments are defined by Treasury as those that cost $10 million in either current year or budget year, or $50 million over the 5 year period 

extending from the prior year through budget year +2.

2 IRS eliminated two major investments in the fiscal year 2013 budget request. 

IT Investments
Appendix I: Briefing Slides

Page 37 GAO-12-603 IRS 2013 Budget

IRS’s Major Investments and Estimated IT 

Costs

Page 31

Source: GAO analysis of IRS’s Exhibit 300A data.

Table 7: IRS’s 20 Major Investments and Estimated IT Costs for Fiscal Year 2011 through Fiscal Year 2016 (in millions)

Investment name

Total estimated 

development costs 

Total estimated 

operations and 

maintenance costs 

Total estimated 

government FTE costs

Total estimated 

costs

Account Management Services (AMS) $0.0 $43.0 $60.2 $103.2

Affordable Care Act (ACA) Administrationa 303.5 0.0 0.0 303.5b

Current Customer Account Data Engine (CADE)c 557.5 116.0 22.8 696.3

CADE 2 852.7 0.2 295.0 1,148.0

Electronic Fraud Detection System (EFDS) 0.0 59.6 18.1 77.7

e-Services (e-SVS) 28.7 34.3 19.5 82.5

Foreign Account Tax Compliance Act (FATCA) 23.9 8.5 9.9 42.3

Implement Return Review Program (RRP) (Replaces EFDS) 72.2 8.4 6.8 87.3

Individual Master File (IMF) 0.0 22.3 49.1 71.4

Information Reporting and Document Matching (IRDM) 54.8 6.6 49.4 110.8

Integrated Customer Communication Environment (ICCE) 16.2 29.8 43.3 89.3

Integrated Data Retrieval System (IDRS) 0.0 23.0 266.9 290.0

Integrated Financial System/CORE Financial System (IFS) 13.2 73.1 8.5 94.9

Integrated Submission and Remittance Processing System (ISRP) 1.3 65.2 13.8 80.3

IRS End User Systems and Services (EUSS) 0.0 585.1 892.1 1,477.3

IRS Main Frames and Servers Services and Support (MSSS) 0.0 4,033.7 0.0 4,033.7

IRS Telecommunications Systems and Support (TSS) 0.0 1,432.9 322.3 1,755.1

IRS.GOV - Portal Environmentd 320.0 244.0 564.0 1,128.0

Modernized e-File (MeF) 184.8 54.4 52.9 292.1

Service Center Recognition/Image Processing System (SCRIPS) 1.0 56.0 11.3 68.3

Total $2,429.9 $6,896.3 $2,705.9 $12,032.0

Note: Numbers may not add due to rounding.

aIRS is implementing PPACA requirements under the investment name of ACA, and funding through the end of fiscal year 2012 is from HIRIF. bThis amount only represents IT estimates for fiscal year 2013 because we did not receive actual fiscal year 2011 costs from IRS in time to include them. We also did not receive IT estimates for fiscal year 

2012, fiscal year 2014, fiscal year 2015, and fiscal year 2016 from IRS in time to include them.

cAccording to IRS, the Current CADE Investment ended on December 31, 2011. The costs represent life-cycle costs consistent with how costs are reported to OMB for this investment. dThe costs represent life-cycle costs consistent with how costs are reported to OMB for this investment.

IT Investments
Appendix I: Briefing Slides

Page 38 GAO-12-603 IRS 2013 Budget

Performance of IRS’s Major IT Investments

• According to IRS, most major IT investments were generally within cost and schedule 

estimates between October 2011 and March 20121 and Treasury CIO ratings showed 

that most major IT investments were moderately low risk in recent months. However, we 

could not determine whether these investments delivered planned functionality.

• IRS reported that, between October 2011 and March 2012,

• 14 of the 20 major IT investments were within 10 percent of cost and schedule 

estimates. 

• the remaining 6 investments reported significant variances from cost or schedule 

estimates.2 Significant variances are typically analyzed to determine root causes, 

as they may indicate problems needing corrective actions (see appendix V).

• Over cost estimate: Current CADE and MeF

• Over schedule estimate: ISRP and MSSS

• Under cost estimate: ACA3 and ICCE

Page 32

1Based on changes to OMB budget guidance, IRS adopted a new methodology for reporting on cost and schedule performance for its major IT investments, starting October 2011. 

Given these changes, we are reporting from October 2011 to March 2012.

2A significant variance from cost and/or schedule is defined as anything below or exceeds 10 percent. 

3IRS is implementing PPACA requirements under the investment name of ACA. 

IT Investments
Appendix I: Briefing Slides

Page 39 GAO-12-603 IRS 2013 Budget

CIO Rated 17 Investments at Moderately Low or 

Low Risk in Recent Months

Page 33

•The CIO rating shows 

how the Treasury CIO 

viewed the performance 

of each investment 

during a rating period. 

•This rating is based on 

risk management, 

requirements 

management, contract 

or oversight, historical 

performance, human 

capital, or any other 

factors that the CIO 

deems important to 

forecasting the future 

success of the 

investment. 

Table 8: CIO Rated Major IT Investments

IT Investments

aThese investments were not reported on the IT dashboard until it was designated a major IT investment in October 2011. bAccording to IRS, CIO ratings for August and September 2011 were not available because of the transition period to newer cost and 

schedule calculations.

cBecause HHS has overall responsibility for ACA, IRS does not provide separate reports to OMB on this investment. We did not obtain 

the CIO rating information prior to March 2012 from HHS in time for this review. 
Appendix I: Briefing Slides

Page 40 GAO-12-603 IRS 2013 Budget

IRS Does Not Have a Quantitative Measure 

of Scope

• While IRS reports on the cost and schedule of its major investments and provides CIO ratings for 

them, the agency does not have a quantitative measure of scope—a measure that shows 

functionality delivered. 

• Having such a measure is a good practice as it provides information about whether an investment 

delivered the functionality that was paid for.

• In 2007, we recommended that IRS develop a quantitative measure of scope for BSM in order to 

have complete information on the performance of these investments.1 IRS agreed with the 

recommendation, and in response, developed a measure to include in the fiscal year 2012 BSM 

expenditure plan. The agency, however, did not use the measure since the expenditure plan was 

discontinued.

• IRS has several methods for ensuring that intended functionality is delivered, including project 

health assessment reports, which provide project status updates and flag risks; and end of 

test completion reports, which are signed off at the end of the development and deployment 

phases. None of these methods, however, provides for a quantitative measure of functionality 

delivered. Officials stated they recognize the value of developing such a measure and plan to 

determine a schedule for doing this. 

• Until it develops a quantitative measure of scope (i.e., functionality delivered), IRS will not have 

complete information on the performance of its investments and will therefore have less assurance 

that it is effectively managing these investments.

Page 34 1GAO, Business Systems Modernization: Internal Revenue Service’s Fiscal Year 2007 Expenditure Plan, GAO-07-247 (Washington, D.C.: February 15, 2007).

IT Investments
Appendix I: Briefing Slides

Page 41 GAO-12-603 IRS 2013 Budget

GAO Has Conducted Analyses Related to 6 of 22 

Legislative Proposals Included in the Budget 

Request for IRS

Page 35

Table 9: Legislative Proposals Related to Prior GAO Work (in millions)

Sources: IRS, Fiscal Year 2013 Congressional Budget Justification, and Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2013 

Revenue Proposals (Washington, D.C.: February 2012). 

IRS legislative proposals related to prior GAO work

Projected

revenues over 

10 years

Projected

costs over 

3 years

Related GAO 

reports

Increase certainty about the rules pertaining to classification of employees as 

independent contractors

$8,372 $1.9 GAO-09-717

Extend IRS math error authority in certain circumstances $173 Not available GAO-10-349, 

GAO-10-225

Allow IRS to absorb credit and debit card processing fees for certain tax 

payments

$19 $9.6 GAO-10-11

Improve and make permanent the provision authorizing the IRS to disclose 

certain return information to certain prison officials

Negligible 

revenue effect

Not available GAO-06-100

Provide Treasury with the regulatory authority to require electronic filing of all 

Form 5500 Annual Report information

No revenue 

effect

$11.2 GAO-05-491

Require taxpayers who prepare their returns electronically, but file their 

returns on paper, to print their returns with a two-dimensional bar code

No revenue 

effect

$6.8 GAO-12-33,

GAO-08-38

• The 22 legislative proposals are estimated to generate more than $12 billion over 10 years 

and are estimated to cost $80.2 million over 3 years.

Legislative Proposals
Appendix I: Briefing Slides

Page 42 GAO-12-603 IRS 2013 Budget

IRS At Least Partially Implemented 5 Prior GAO 

Recommendations to Improve the Budget Presentation

Page 36

Source: GAO analysis.

aGAO-08-567

bGAO, Internal Revenue Service: Review of the Fiscal Year 2010 Budget Request, GAO-09-754 (Washington, D.C.: June 3, 2009). cGAO-11-547

GAO Open Matters and Recommendations

Recommendations Actions taken by IRS Benefit 

Extend the use of ROI in future 

budget proposals to include major 

enforcement programs.a

IRS made a significant step forward in beginning to calculate actual ROIs 

for major enforcement programs. Specifically, IRS captured actual revenue 

and cost associated for Exam, Collections and Automated Underreporter

(AUR) programs. IRS officials said they plan to report this data in the 

budget justification next year, pending various approvals.

Actual ROIs could provide information about 

how programs and initiatives are performing, 

and could serve as a basis for assessing the 

revenue and cost impact of program-level 

changes.

Develop ROIs for IRS’s enforcement 

programs using actual revenue and 

full cost data and compare the actual 

ROIs to the projected ROIs included 

in the full budget request.b

Although not at the program initiative level, IRS made a significant step 

forward in beginning to calculate actual ROIs for major enforcement 

programs. Specifically, IRS captured actual revenues and costs associated 

for Exam, Collections and AUR programs. IRS officials said they plan to 

report this data in the budget justification next year, pending various 

approvals.

Actual ROIs could provide information about 

how programs and initiatives are performing, 

and could serve as a basis for assessing the 

revenue and cost impact of program-level 

changes.

Report how savings beyond 

projections were used. The amount 

of explanation provided should 

correspond to the amount of 

savings.c

IRS reported in the fiscal year 2013 budget request, how savings beyond 

projections were used. For fiscal year 2011, IRS reported that it realized 

$277.2 million and 960 FTE in actual savings—$86.5 million and 488 FTE 

more than projected.

Knowing how an agency spent excess 

savings, particularly in years when the excess 

is significant, could help Congress assess 

budgetary needs in the future.

Provide cost estimates for individual 

legislative proposals in future budget 

justifications.c

IRS provided cost estimates for individual legislative proposals in the Fiscal 

Year 2013 Congressional Budget Justification for IRS. 

By knowing estimated costs to implement an 

individual legislative proposal, Congress has 

important information to use when weighing 

proposals.

Include measures of cost and 

schedule performance for major IT 

systems in Operations Support, such 

as it does for BSM.c

IRS included measures of cost and schedule performance for major IT 

systems in the Fiscal Year 2013 Congressional Budget Justification for IRS.

Congressional stakeholders we met with 

stated that having a summary of cost and 

scheduled performance for major IT systems in 

Operations Support would be helpful for 

oversight.

Table 10: IRS Took Steps to Implement Prior Recommendations
Appendix I: Briefing Slides

Page 43 GAO-12-603 IRS 2013 Budget

Some Prior Recommendations to Improve the 

Budget Presentation Remain Open

Page 37

Source: GAO analysis of prior budget related reports.

aGAO-10-687R bGAO-11-547

GAO Open Matters and Recommendations

Open recommendations Benefit

Provide additional information, which could be qualitative if necessary to 

avoid losing existing reprogramming flexibility, about the program activities 

in the budget justification to better indicate IRS’s priorities.a

Program-level information increases Congress’s ability to understand priorities and 

make more informed decisions about the use of resources.

Make explicit linkages between initiatives and proposals in the budget and 

strategic documents.a

Without an explicit and transparent connection between IRS’s strategic documents 

and the budget request, Congress and other stakeholders may not be able to 

understand the priority that IRS is giving to its efforts to improve service and 

enforcement.

Explain in the budget justification noteworthy changes in performance 

goals that reflect changes from previous performance and describe the 

impact on funding.a

Clear linkages between performance goals and funding can help determine how 

funded activities contribute to operational goals and specific measures. These 

linkages can also illustrate how targets align with funding and how efficiently 

resources are used.

Expand efforts to systematically identify savings and efficiencies as part of 

its budget development process on a periodic, but not necessarily annual, 

basis.b

Best practices suggest that agencies routinely identify savings and efficiencies. By 

not applying the more systematic and productive IT approach agency wide, IRS 

might be missing opportunities to realize savings and efficiencies. 

• Implementing the following recommendations could provide important information for 

budget decision makers.

Table 11: Some Recommendations to IRS Remain Open
Appendix I: Briefing Slides

Page 44 GAO-12-603 IRS 2013 Budget

106 Open Matters for Congress and Recommendations to 

IRS Regarding Tax Administration Could Result in 

Potential Savings or Increased Revenues 

• As of March 19, 2012, 33 GAO products contain 10 matters for Congress and 

96 recommendations to IRS (see appendix VI). 

• 32 increase revenue, 7 increase savings, 16 increase both savings and 

revenue, and 51 have indirect financial benefits. For example:

• If Congress amended the Internal Revenue Code to make all taxpayers 

with rental real estate activity subject to the same information reporting 

requirements as other taxpayers operating a trade or business, IRS 

could generate $2.5 billion over 10 years.a

• If IRS could obtain more helpful information about taxpayers' mortgages 

by expanding information collected on Form 1098, it could improve 

taxpayer compliance with statutory requirements and increase 

revenues.b

• Since last year, 1 matter and 25 recommendations were implemented.

Page 38 aJoint Committee on Taxation, “Estimated Budget Effects of the Revenue Provisions Contained in the President’s Fiscal Year 2011 Budget Proposal,” JCX-7-10 R (March 15, 2010). bGAO, Home Mortgage Interest Deduction: Despite Challenges Presented by Complex Tax Rules, IRS Could Enhance Enforcement and Guidance, GAO-09-769 (Washington, D.C.: July 

29, 2009). 

GAO Open Matters and Recommendations 
Appendix I: Briefing Slides

Page 45 GAO-12-603 IRS 2013 Budget

Conclusions

• We have identified several areas where budget decision makers lack information that would be 

helpful in making decisions about resource trade-offs at IRS. 

• Unlike most enforcement initiatives that IRS now justifies with ROI estimates, nonenforcement investment initiatives are not justified with similar economic analyses, such as 

cost-effectiveness analyses. When comparisons of alternative investments for accomplishing 

a goal do not consider costs, budget decision makers cannot be assured that alternatives 

were fully evaluated and that the best alternative was selected. 

• Without a timely, updated cost estimate for PPACA, budget decision makers will not know the 

fraction of the multi-year effort being funded in fiscal year 2013 or the subsequent remaining 

costs. 

• Because the budget request for hiring new staff is not based on expected hiring dates, but 

instead assumes hiring will occur at the beginning of the fiscal year, some funds will be 

available for other uses, which are not described or substantiated in the budget request. 

• Although IRS tracks the schedule and cost performance of IT investments, it does not have a 

quantitative measure to determine whether it is delivering planned functionality. Without this 

measure, budget decision makers lack complete information about IRS’s performance in 

managing IT investment projects.

Page 39
Appendix I: Briefing Slides

Page 46 GAO-12-603 IRS 2013 Budget

Recommendations for Executive Action

• To continue to improve information on program cost and results that could aid in resource decision 

making, we recommend that the Commissioner of Internal Revenue

• ensure cost-effectiveness analyses are conducted for future significant investments when 

there are alternative approaches for achieving a given benefit, such as for any new significant 

PPACA projects;

• ensure that an updated PPACA cost estimate is completed by September 2012 in accordance 

with best practices in the GAO Cost Guide; 

• prepare funding requests for new staff based on estimated hiring dates; and 

• develop a quantitative measure of scope, at a minimum for its major IT investments, to have 

more complete information on the performance of these investments.

Page 40
Appendix II: Comments from the Internal 

Revenue Service

Page 47 GAO-12-603 IRS 2013 Budget

Appendix II: Comments from the Internal 

Revenue Service
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 48 GAO-12-603 IRS 2013 Budget

The following figures outline our assessment of the extent to which the 

Internal Revenue Service’s (IRS) Fiscal Year 2013 Patient Protection and 

Affordable Care Act (PPACA) cost estimate for new initiatives meet best 

practices. This information is repeated in table 1, following the graphics.

Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate
Interactive graphic

Page 49 GAO-12-603 IRS 2013 Budget

Rollover each below to see further information on cost estimation best practices.

Directions:

Note: We determined the overall assessment rating by assigning the following ratings: Partially Meets – IRS provided evidence 

that satisfies about half of the criterion.

a

GAO, Patient Protection and Affordable Care Act: IRS Should Expand Its Strategic Approach to Implementation, GAO-11-719 

(Washington, D.C.: June 29, 2011).

Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

A comprehensive cost estimate:

Best practices characteristics Assessment of whether best practices are met

Figure 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with the Best 

Practices for Comprehensiveness

Effect

Has a product-oriented 

work breakdown structure 

(WBS), traceable to the 

program’s technical scope 

at an appropriate level of 

detail.

Documents all costinfluencing ground rules 

and assumptions.

Completely defines the 

program, reflects the 

current schedule, and is 

technically reasonable.

Includes all life-cycle 

costs. 

The Modernization and Information Technology 

Services (MITS) cost estimate contains all the 

IT needs for the program as known at the time 

of the estimate. The MITS estimate cost model 

includes labor and non labor costs as well as 

government and contractor costs, but they are 

only included for fiscal year 2010 through fiscal 

year 2013. Investment and operations and maintenance costs are included only for the same 

time period. The cost model did not mention 

disposal costs. 

Partially meets

The WBS has not been modified since our 2011

reviewa

 and does not include a schedule or EVM

reporting. It is still based on high level requirements and is not standardized. However, a WBS

and dictionary are now part of the statement of

work for the cost estimate.

Partially meets

Ground rules and assumptions are defined for 

each cost element in the cost model spreadsheet, 

assigned according to WBS, and reflect relevant 

historical data. However, we found no evidence 

that the assumptions were associated with any 

risk analysis or developed with input from IRS’s 

technical community or were approved by management. The effect of budget constraints has not 

been identified despite the fact that the program 

has already experienced budget cuts. 

Partially meets

The cost model documentation only discusses 

the architecture and project timeline, which is 

just part of the technical description. 

Partially meets

Without a WBS, the program lacks a framework to develop a schedule and cost plan that can easily track 

technical accomplishments—in terms of resources 

spent in relation to the plan as well as completion of 

activities and tasks.

Unless ground rules and assumptions are clearly 

documented, the cost estimate will not have a basis 

for resolving potential risks. Furthermore, the estimate 

cannot be reconstructed when the original estimators 

are no longer available.

Understanding the program—including the acquisition 

strategy, technical definition, characteristics, system 

design features, and technologies to be included—is 

key to developing a credible cost estimate. Without 

these data, the cost estimator will not be able to 

identify the technical and program parameters that 

will bind the cost estimate.

A life–cycle cost estimate should encompass all past 

(or sunk), present, and future costs for every aspect 

of the program, regardless of funding source, including all government and contractor costs. Without 

fully accounting for life-cycle costs, management 

will have difficulty successfully planning program 

resource requirements and making wise decisions. 

Partially meets best practices for a 

comprehensive cost estimate.

Overall assessment:
Interactive graphic

Page 50 GAO-12-603 IRS 2013 Budget

Rollover each below to see further information on cost estimation best practices.

Directions:

Note: We determined the overall assessment rating by assigning the following ratings: Minimally Meets – IRS provided evidence 

that satisfies a small portion of the criterion, Partially Meets – IRS provided evidence that satisfies about half of the criterion, 

Substantially Meets – IRS provided evidence that satisfies a large portion of the criterion.

a

We did not describe effects for characteristics scored as “substantially meets.”

Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

A well documented cost estimate should:

Best practices characteristics Assessment of whether best practices are met

Figure 2: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns 

with the Best Practices for Being Well Documented

Effect

Describe the calculations 

and the methodology 

used to derive each element’s cost.

Capture the source data 

used, the reliability of the 

data, and how the data 

were made compatible 

with other data in the 

estimate.

Describe how the 

estimate was developed.

Discuss the technical 

baseline description.

Provide evidence of 

management review and 

acceptance.

Calculations are shown in a spreadsheet cost 

model. However, some of the estimates were 

based on expert opinion with no historical data 

provided to back up the estimates. 

Substantially meets

Step by step calculations are shown. However, as mentioned above there were several 

subprojects that had cost estimates based on 

expert opinion that were hard coded into the cost 

model, which makes it difficult to understand how 

these estimates were developed. 

Substantially meets

The cost model documentation only discusses 

some of the technical baseline description. 

Partially meets

Program officials said approval of the cost 

estimate was given by the Commissioner’s Office. However, documentation showing management acceptance of the cost estimate was not 

provided. 

Minimally meets

Without a technical baseline, the cost estimate will not 

be based on a comprehensive program description 

and will lack specific information regarding technical 

and program risks.

A cost estimate is not considered valid until management has approved it. It is imperative that management understand how the estimate was developed, 

including the risks associated with the underlying data 

and methods.

Only some sources of data are shown in cost 

model. The cost estimate does not address the 

reliability of the data or if historical data was 

made compatible with other data in the estimate. 

Partially meets

Data are the foundation of every cost estimate. The 

quality of the data affects the estimate’s overall credibility. Depending on the data quality, an estimate 

can range anywhere from a mere guess to a highly 

defensible cost position. However, without sufficient 

background knowledge about the source and reliability 

of the data, the cost estimator cannot know with any 

confidence whether the data collected can be used 

directly or need to be modified.

(a

)

(

a

)

Partially meets best practices for a 

well documented cost estimate.

Overall assessment:
Interactive graphic

Page 51 GAO-12-603 IRS 2013 Budget

Rollover each below to see further information on cost estimation best practices.

Directions:

Note: We determined the overall assessment rating by assigning the following ratings: Does Not Meet – IRS provided no 

evidence that satisfies any of the criterion, Minimally Meets – IRS provided evidence that satisfies a small portion of the criterion, 

Partially Meets – IRS provided evidence that satisfies about half of the criterion, Substantially Meets – IRS provided evidence 

that satisfies a large portion of the criterion, Fully Meets – IRS provided complete evidence that satisfies the entire criterion.

a

We did not describe effects for characteristics scored as “fully meets” or “substantially meets.”

Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

An accurate cost estimate:

Best practices characteristics Assessment of whether best practices are met

Figure 3: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with the Best 

Practices For Accuracy 

Effect

Produces unbiased 

results. 

Is properly adjusted for 

inflation. 

Contains few mistakes.

Is regularly updated to 

reflect significant program 

changes.

The cost estimate budget was based on a high 

estimate as the program is in a very early stage 

and a lot of uncertainty remains. According to 

IRS officials, there is a 60 to 70 percent confidence rate that the estimate will fall between the 

low and high range of cost. 

Partially meets

Inflation was not used in the cost model.

Does not meet

The IT cost estimate has not been updated since 

October 2010, except that IRS did include actual 

costs for fiscal year 2011. Further, documentation 

did not show that staffing estimates were reevaluated for fiscal year 2013. However, on April 

26, 2012 IRS awarded a contract to update the 

entire development cost estimate which includes 

both the IT and staffing portions. 

Minimally meets

IRS did a line by line check of the estimate to 

validate it. We also performed a check of the 

spreadsheets provided and found no 

errors. 

Fully meets

A cost estimate is biased if the estimated work is 

overly conservative or too optimistic. Unless the 

estimate is based on an assessment of the most likely 

costs and reflects the degree of uncertainty given all 

of the risks considered, management will not be able 

to make informed decisions. 

Adjusting for inflation is important because in the 

development of an estimate, cost data must be expressed in like terms. If a mistake is made or the inflation amount is not correct, cost overruns can result. 

If a cost estimate is not updated, it can become more 

difficult to analyze changes in program costs and 

collecting cost and technical data to support future 

estimates will be hindered. Cost estimates not updated 

when the technical baseline changes will lack credibility. 

(a

) 

Partially meets best practices for an 

accurate cost estimate.

Overall assessment:

Documents and explains 

variances between 

planned and actual costs.

Actual costs are being tracked, but the documentation does not discuss variances or lessons 

learned. 

Minimally meets

Without a documented comparison between the current estimate (updated with actual costs) and the old 

estimate, cost estimators cannot determine the level 

of variance between the two estimates. That is, the 

estimators cannot see how well they are estimating and 

how the program is changing over time.

Reflects cost estimating 

experiences from comparable programs.

The majority of the estimate was based on 

historical data. 

Substantially meets

(a)
Interactive graphic

Page 52 GAO-12-603 IRS 2013 Budget

Rollover each below to see further information on cost estimation best practices.

Directions:

Note: We determined the overall assessment rating by assigning the following ratings: Does Not Meet – IRS provided no 

evidence that satisfies any of the criterion, Minimally Meets – IRS provided evidence that satisfies a small portion of the criterion.

Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

A credible cost estimate includes:

Best practices characteristics Assessment of whether best practices are met

Figure 4: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with the Best 

Practices for Credibility 

Effect

A sensitivity analysis 

that identifies a range of 

possible costs based on 

varying inputs.

A risk and uncertainty 

analysis.

Each element of the cost estimate is presented 

as a high, low, and most likely range of costs. 

However, it is not clear how each changing each 

variable would affect the overall total cost. 

Minimally meets

Each element of the cost estimate is presented 

with a high, low, and most likely range of costs. 

However, a comprehensive risk and uncertainty 

analysis was not completed.

The program has already experienced a reduced 

budget in fiscal year 2012. The IRS requested 

$473 million, but the request was not funded, so 

IRS revised its fiscal year 2012 spending plan 

to $332.2 million from HHS funds. However, the 

IRS has not considered the risk of future budget 

reductions on the estimate. By not risk adjusting 

the estimate, the IRS risks either running behind 

schedule or incurring more costs to maintain the 

schedule. 

Minimally meets

Without sensitivity analysis that reveals how the cost 

estimate is affected by a change in a single assumption, the cost estimator will not fully understand which 

variable most affects the cost estimate.

For management to make good decisions, the program estimate must reflect the degree of uncertainty, 

so that a level of confidence can be given about the 

estimate. Having a range of costs around a point 

estimate is more useful to decision makers because it 

conveys the level of confidence in achieving the most 

likely cost and also informs them on cost, schedule, 

and technical risks. 

Minimally meets best practices for a 

credible cost estimate.

Overall assessment:

Cross-checking of major 

cost elements.

No evidence of any cross-checks was found in 

the cost estimate documentation.

Does not meet

One way to reinforce the credibility of the cost estimate is to see whether applying a different method 

produces similar results. The main purpose of crosschecking is to determine whether alternative methods 

produce similar results. If so, then confidence in the 

estimate increases, leading to greater credibility.

A comparison to an independent cost estimate 

conducted by another 

organization.

On April 26, 2012, IRS awarded a contract to update the PPACA cost estimate. The contract was 

provided and closely matches the best practices 

of the GAO cost guide. IRS officials told us they 

plan to use the IRS Estimation Program Office 

(EPO) to perform validation of the revised cost estimate from the contractor. Having the EPO create 

an independent cost estimate to validate the hired 

cost estimating contractor will provide assurance 

that the delivered cost estimate is high quality. 

Minimally meets

A program estimate that has not been reconciled with 

an independent cost estimate has an increased risk 

of proceeding underfunded because an independent 

cost estimate provides an objective and unbiased 

assessment of whether the program estimate can be 

achieved.
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 53 GAO-12-603 IRS 2013 Budget

The following table outlines our assessment of the extent to which IRS’s 

Fiscal Year 2013 PPACA cost estimate for new initiatives meet best 

practices. This information is also depicted in the previous figures 1-4. 

Table 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with Best Practices Outlined in the GAO Cost Guide

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

A comprehensive cost 

estimate:

Partially meets best 

practices for a 

comprehensive cost 

estimate

Includes all life-cycle costs.

A life-cycle cost estimate 

provides a complete and 

structured accounting of all 

resources and associated cost 

elements required to develop, 

produce, deploy, and sustain a 

particular program. It should 

cover the inception of the 

program through its 

retirement.

The Modernization and Information 

Technology Services (MITS) cost 

estimate contains all the IT needs for 

the program as known at the time of 

the estimate. The MITS estimate cost 

model includes labor and non labor 

costs as well as government and 

contractor costs, but they are only 

included for fiscal year 2010 through 

fiscal year 2013. Investment and 

operations and maintenance costs are 

included only for the same time period. 

The cost model did not mention 

disposal costs. (Partially meets.)

A life-cycle cost estimate should 

encompass all past (or sunk), 

present, and future costs for every 

aspect of the program, regardless of 

funding source, including all 

government and contractor costs. 

Without fully accounting for life-cycle 

costs, management will have difficulty 

successfully planning program 

resource requirements and making 

wise decisions.

Completely defines the 

program, reflects the current 

schedule, and is technically 

reasonable.

The cost estimate should be 

based on a documented 

technical baseline description, 

which provides a common 

definition of the program, 

including detailed technical, 

program, and schedule 

descriptions of the system.

The cost model documentation only 

discusses the architecture and project 

timeline, which is just part of the 

technical description. (Partially meets.)

Understanding the program— 

including the acquisition strategy, 

technical definition, characteristics, 

system design features, and 

technologies to be included—is key 

to developing a credible cost 

estimate. Without these data, the cost 

estimator will not be able to identify 

the technical and program 

parameters that will bind the cost 

estimate.
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 54 GAO-12-603 IRS 2013 Budget

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

Has a product-oriented work 

breakdown structure (WBS), 

traceable to the program’s 

technical scope at an 

appropriate level of detail.

A WBS provides a basic 

framework for a variety of 

related activities like 

estimating costs, developing 

schedules, identifying 

resources and potential risks, 

and providing the means for 

measuring program status 

using earned value 

management (EVM). It is 

product-oriented if it allows a 

program to track cost and 

schedule by defined 

deliverables, such as a 

hardware or software 

component.

The WBS has not been modified since 

our 2011 reviewa and does not include 

a schedule or EVM reporting. It is still 

based on high level requirements and 

is not standardized. However, a WBS 

and dictionary are now part of the 

statement of work for the upcoming 

new cost estimate. (Partially meets.)

Without a WBS, the program lacks a 

framework to develop a schedule and 

cost plan that can easily track 

technical accomplishments—in terms 

of resources spent in relation to the 

plan as well as completion of 

activities and tasks.

Documents all cost-influencing 

ground rules and 

assumptions.

Cost estimates are typically 

based on limited information 

and therefore need to be 

bound by ground rules and 

assumptions. Ground rules 

are a set of estimating 

standards that provide 

guidance and common 

definitions, while assumptions 

are judgments about past, 

present, or future conditions 

that may affect the estimate.

Any risks associated with 

assumptions should be 

identified and traced to 

specific WBS elements.

Ground rules and assumptions are 

defined for each cost element in the 

cost model spreadsheet, assigned 

according to WBS, and reflect relevant 

historical data. However, we found no 

evidence that the assumptions were 

associated with any risk analysis or 

developed with input from IRS’s 

technical community or were approved 

by management. The effect of budget 

constraints has not been identified 

despite the fact that the program has 

already experienced budget cuts. 

(Partially meets.)

Unless ground rules and assumptions 

are clearly documented, the cost 

estimate will not have a basis for 

resolving potential risks. Furthermore, 

the estimate cannot be reconstructed 

when the original estimators are no 

longer available.

A well documented cost 

estimate should:

Partially meets best 

practices for a well 

documented cost 

estimate.
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 55 GAO-12-603 IRS 2013 Budget

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

Capture the source data used, 

the reliability of the data, and 

how the data were made 

compatible with other data in 

the estimate.

Data should be collected from 

primary sources. The source, 

content, time, and units should 

be adequately documented. 

Further, data should be 

analyzed to determine 

accuracy and reliability, and to 

identify cost drivers.

Only some sources of data are shown 

in cost model. The cost estimate does 

not address the reliability of the data or 

if historical data was made compatible 

with other data in the estimate.

(Partially meets.)

Data are the foundation of every cost 

estimate. The quality of the data 

affects the estimate’s overall 

credibility. Depending on the data 

quality, an estimate can range 

anywhere from a mere guess to a 

highly defensible cost position. 

However, without sufficient 

background knowledge about the 

source and reliability of the data, the 

cost estimator cannot know with any 

confidence whether the data 

collected can be used directly or 

need to be modified.

Describe the calculations and 

the methodology used to 

derive each element’s cost.

Documentation should 

describe what calculation 

methods are used, as well as 

how they were applied, and 

explain any anomalies.

Calculations are shown in a 

spreadsheet cost model. However, 

some of the estimates were based on 

expert opinion with no historical data 

provided to back up the estimates. 

(Substantially meets.)

(

b

) 

Describe how the estimate 

was developed.

The data supporting the 

estimate should be available 

and adequately documented 

so that the estimate can be 

easily updated to reflect actual

costs or program changes.

Step by step calculations are shown. 

However, as mentioned above there 

were several subprojects that had cost 

estimates based on expert opinion that 

were hard coded into the cost model, 

which makes it difficult to understand 

how these estimates were developed. 

(Substantially meets.)

(

b

) 

Discuss the technical baseline 

description.

A technical baseline 

description provides a 

common definition of the 

program, including detailed 

technical, program, and 

schedule descriptions of the 

system, for a cost estimate to 

be built on. The data in the 

technical baseline should be 

consistent with the cost 

estimate.

The cost model documentation only 

discusses some of the technical 

baseline description. (Partially meets.)

Without a technical baseline, the cost 

estimate will not be based on a 

comprehensive program description 

and will lack specific information 

regarding technical and program 

risks.
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 56 GAO-12-603 IRS 2013 Budget

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

Provide evidence of 

management review and 

acceptance.

There should be a briefing to 

management, including a clear 

explanation of how the cost 

estimate was derived. 

Management’s acceptance of 

the cost estimate should be 

documented.

Program officials said approval of the 

cost estimate was given by the 

Commissioner’s Office. However, 

documentation showing management 

acceptance of the cost estimate was 

not provided. (Minimally meets.)

A cost estimate is not considered 

valid until management has approved 

it. It is imperative that management 

understand how the estimate was 

developed, including the risks 

associated with the underlying data 

and methods.

An accurate cost estimate: Partially meets best 

practices for an 

accurate cost 

estimate.

Produces unbiased results.

Cost estimates should have 

an uncertainty analysis, which 

determines where the 

estimate falls against the 

range of all possible costs.

The cost estimate budget was based 

on a high estimate as the program is in 

a very early stage and a lot of 

uncertainty remains. According to IRS 

officials, there is a 60 to 70 percent 

confidence rate that the estimate will 

fall between the low and high range of 

cost. (Partially meets.)

A cost estimate is biased if the 

estimated work is overly conservative 

or too optimistic. Unless the estimate 

is based on an assessment of the 

most likely costs and reflects the

degree of uncertainty given all of the 

risks considered, management will 

not be able to make informed 

decisions.

Is properly adjusted for 

inflation.

Cost data should be adjusted 

for inflation to ensure that 

comparisons and projections 

are valid. Data should also be 

normalized to constant year 

dollars to remove the effects 

of inflation. Also, inflation 

assumptions must be well 

documented.

Inflation was not used in the cost 

model. (Does not meet.)

Adjusting for inflation is important 

because in the development of an 

estimate, cost data must be 

expressed in like terms. If a mistake 

is made or the inflation amount is not 

correct, cost overruns can result.

Contains few mistakes.

Results should be checked for 

accuracy, double counting, 

and omissions. Validating that 

a cost estimate is accurate 

requires thoroughly 

understanding and 

investigating how the cost 

model was constructed.

IRS did a line by line check of the 

estimate to validate it. We also 

performed a check of the 

spreadsheets provided and found no 

errors. (Fully meets.)

(

b

) 
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 57 GAO-12-603 IRS 2013 Budget

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

Is regularly updated to reflect 

significant program changes.

The cost estimate should be 

updated to reflect significant 

program changes, such as 

changes to schedules or other 

assumptions. Updates should 

also reflect actual costs so 

that the estimate always 

reflects the current program 

status.

The IT cost estimate has not been 

updated since October 2010, except 

that IRS did include actual costs for 

2011. Further, documentation did not 

show that staffing estimates were reevaluated for fiscal year 2013. 

However, on April 26, 2012 IRS 

awarded a contract to update the 

entire development cost estimate 

which includes both the IT and staffing 

portions. (Minimally meets.)

If a cost estimate is not updated, it 

can become more difficult to analyze 

changes in program costs and 

collecting cost and technical data to 

support future estimates will be 

hindered. Cost estimates not updated 

when the technical baseline changes 

will lack credibility.

Documents and explains 

variances between planned 

and actual costs.

Variances between planned 

and actual costs should be 

documented, explained, and 

reviewed. For any elements 

whose actual costs or 

schedules differ from the 

estimate, the estimate should 

discuss variances and lessons 

learned.

Actual costs are being tracked but the 

documentation does not discuss 

variances or lessons learned. 

(Minimally meets.)

Without a documented comparison 

between the current estimate 

(updated with actual costs) and the 

old estimate, cost estimators cannot 

determine the level of variance 

between the two estimates. That is, 

the estimators cannot see how well 

they are estimating and how the 

program is changing over time.

Reflects cost estimating 

experiences from comparable 

programs.

The estimate should be based 

on historical cost estimation 

data and actual experiences 

from other comparable 

programs. These data should 

be reliable and relevant to the 

new program.

The majority of the estimate was 

based on historical data. (Substantially 

meets.)

(

b

) 

A credible cost estimate 

includes:

Minimally meets best 

practices for a 

credible cost 

estimate.
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 58 GAO-12-603 IRS 2013 Budget

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

A sensitivity analysis that 

identifies a range of possible 

costs based on varying inputs.

A sensitivity analysis 

examines how changes to key 

assumptions and inputs affect 

the estimate. The estimate 

should identify key cost 

drivers, examine their 

parameters and assumptions, 

and re-estimate the total cost 

by varying each parameter 

between its minimum and 

maximum range.

Each element of the cost estimate is 

presented as a high, low, and most 

likely range of costs. However, it is not 

clear how changing each variable 

would affect the overall total cost. 

(Minimally meets.)

Without sensitivity analysis that 

reveals how the cost estimate is 

affected by a change in a single 

assumption, the cost estimator will 

not fully understand which variable 

most affects the cost estimate.

A risk and uncertainty 

analysis.

A risk and uncertainty analysis 

recognizes the potential for 

error and attempts to quantify 

it by identifying the effects of 

changing key cost drivers.

Each element of the cost estimate is 

presented with a high, low, and most 

likely range of costs. However, a 

comprehensive risk and uncertainty 

analysis was not completed.

The program has already experienced 

a reduced budget in fiscal year 2012. 

The IRS requested $473 million, but 

the request was not funded so IRS 

revised its fiscal year 2012 spending 

plan to $332.2 million from HHS funds. 

However, the IRS has not considered 

the risk of future budget reductions on 

the estimate. By not risk adjusting the 

estimate, the IRS risks either running 

behind schedule or incurring more 

costs to maintain the schedule. 

(Minimally meets.)

For management to make good 

decisions, the program estimate must 

reflect the degree of uncertainty, so 

that a level of confidence can be 

given about the estimate. Having a 

range of costs around a point 

estimate is more useful to decision 

makers because it conveys the level 

of confidence in achieving the most 

likely cost and also informs them on 

cost, schedule, and technical risks.

Cross-checking of major cost 

elements.

A cross-check is done by 

using a different cost 

estimation method to see if it 

produces similar results.

No evidence of any cross-checks was 

found in the cost estimate 

documentation. (Does not meet.)

One way to reinforce the credibility of 

the cost estimate is to see whether 

applying a different method produces 

similar results. The main purpose of 

cross-checking is to determine 

whether alternative methods produce 

similar results. If so, then confidence 

in the estimate increases, leading to 

greater credibility.
Appendix III: Reliability of Patient Protection 

and Affordable Care Act Cost Estimate

Page 59 GAO-12-603 IRS 2013 Budget

Best practices 

characteristics

Overall 

assessment

Assessment of whether best 

practices are met Effect 

A comparison to an 

independent cost estimate 

conducted by another 

organization.

A second, independent cost 

estimate should be performed 

by an organization outside of 

the program office’s influence. 

It should be based on the 

same technical baseline, 

ground rules, and 

assumptions as the original 

estimate.

IRS awarded a contract to update the 

PPACA cost estimate on April 26, 

2012. The statement of work for this 

contract was provided and closely 

matches the best practices of the GAO 

Cost Guide. IRS officials told us they 

plan to use the IRS Estimation 

Program Office (EPO) to perform 

validation of the revised cost estimate 

from the contractor. Having the EPO 

create an independent cost estimate to 

validate the hired cost estimating 

contractor will provide assurance that 

the delivered cost estimate is high 

quality. (Minimally meets.)

A program estimate that has not been 

reconciled with an independent cost 

estimate has an increased risk of 

proceeding underfunded because an 

independent cost estimate provides 

an objective and unbiased 

assessment of whether the program 

estimate can be achieved.

Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP. 

Note: We determined the overall assessment rating by assigning the following ratings: Does Not 

Meet–IRS provided no evidence that satisfies any of the criterion, Minimally Meets–IRS provided 

evidence that satisfies a small portion of the criterion, Partially Meets–IRS provided evidence that 

satisfies about half of the criterion, Substantially Meets–IRS provided evidence that satisfies a large 

portion of the criterion, Fully Meets–IRS provided complete evidence that satisfies the entire criterion.

a

GAO, Patient Protection and Affordable Care Act: IRS Should Expand Its Strategic Approach to 

Implementation, GAO-11-719 (Washington, D.C.: June 29, 2011).

b

We did not describe effects for characteristics scored as “fully meets” or “substantially meets.” 
Appendix IV: Description of the Internal 

Revenue Service’s Major Information 

Technology Investments

Page 60 GAO-12-603 IRS 2013 Budget

Table 2: The Internal Revenue Service’s 20 Major Information Technology Investments

Investment Name Investment Description

Account Management Services (AMS) This investment is intended to enhance customer support by providing applications that 

enable IRS employees to access, validate, and update individual taxpayer accounts on 

demand.

Affordable Care Act (ACA) Administrationa This investment allows the IRS to continue the development of new systems and 

modification of existing systems required to support new tax credits as prescribed in 

the Affordable Care Act.

Current Customer Account Data Engine 

(CADE) 

This investment was intended to deploy a modernized database foundation that would 

replace the IRS’s Individual Master File processing system and house tax information 

for more than 200 million taxpayers while providing faster return processing and 

refunds. According to IRS, the Current CADE Investment ended on December 31, 

2011.

CADE 2 This investment is intended to leverage knowledge gained from the development on 

Current CADE and data from the Individual Master File to provide timely access to 

authoritative individual taxpayer account information and also enhance IRS’s ability to 

address technology, security, financial material weaknesses, and long-term 

architectural planning and viability.

Electronic Fraud Detection System (EFDS) This investment is intended to detect fraud at the time that tax returns are filed in order 

to eliminate the issuance of fraudulent tax refunds.

e-Services (e-SVS) This investment is several web-based self-assisted services that are intended to allow 

authorized individuals to do business with the IRS electronically.

Foreign Account Tax Compliance Act 

(FATCA) 

This investment requires foreign financial institutions to report to the IRS information 

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

taxpayers hold a substantial ownership interest as required by the FATCA.

Implement Return Review Program (RRP; 

replaces EFDS)

This investment, currently under development, is intended to maximize fraud detection 

at the time that tax returns are filed to eliminate issuance of questionable refunds.

Individual Master File (IMF) This investment is the authoritative data source for individual tax account data. All 

other IRS information systems that process IMF data depend on output from this 

source. This investment is a critical component of IRS’s ability to process tax returns.

Information Reporting and Document 

Matching (IRDM)

This investment is intended to establish a new business information matching program 

in order to increase voluntary compliance and accurate income reporting.

Integrated Customer Communication 

Environment (ICCE)

This investment includes several projects that are intended to simplify voluntary 

compliance using voice response, Internet, and other computer technology such as the 

Modernized Internet Employee Identification Number (Mod IEIN), which allows third 

parties to act on the behalf of taxpayers.

Integrated Data Retrieval System (IDRS) This investment is intended to provide systemic review, improve consistency in case

control, alleviate staffing needs, issue notices to taxpayers, and allow taxpayers to see 

status of refunds. It is a mission-critical system used by 60,000 IRS employees.

Integrated Financial System/CORE Financial 

System (IFS)

This investment is the financial system used by IRS for budget, payroll, accounts 

payable/receivable, general ledger functions, and financial reporting. IRS uses this 

system to report on the cost of operations and to manage budgets by fiscal year.

Integrated Submission and Remittance 

Processing System (ISRP)

This investment is intended to process paper tax returns, and updates tax forms to 

comply with tax law changes.

IRS End User Systems and Services (EUSS) This investment is intended to support products and services necessary for daily 

functions for over 100,000 IRS employees at headquarters and field sites.

Appendix IV: Description of the Internal 

Revenue Service’s Major Information 

Technology Investments 
Appendix IV: Description of the Internal 

Revenue Service’s Major Information 

Technology Investments

Page 61 GAO-12-603 IRS 2013 Budget

Investment Name Investment Description

IRS Main Frames and Servers Services and 

Support (MSSS)

This investment is intended to support the design, development and deployment of 

server storage infrastructures, software, databases, and operating systems.

IRS Telecommunications Systems and 

Support (TSS)

This investment supports IRS’s broad and local network infrastructure such as servers, 

and switches for voice, data, and video servicing of about 1,000 IRS sites.

IRS.GOV - Portal Environment This investment is intended to provide web-based services such as tax filing and 

refund tracking, to internal and external users, such as IRS employees and other 

government agencies, taxpayers, and business partners.

Modernized e-File (MeF) This investment is intended to provide a secure web-based platform for electronic tax 

filing of individual and business tax and information returns by registered Electronic 

Return Originators.

Service Center Recognition/Image 

Processing System (SCRIPS) 

This investment is intended to be 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 electronic 

format.

Source: GAO analysis of IRS data.

Notes: According to IRS, major investments are defined by the Department of Treasury as those that 

cost $10 million in either current year or budget year, or $50 million over the 5 year period extending 

from the prior year through budget year +2.

a

IRS is implementing the Patient Protection and Affordable Care Act requirements under the 

investment name of ACA.
Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances

Page 62 GAO-12-603 IRS 2013 Budget

Of the 20 major Information Technology (IT) investments, 6 had 

significant variances from the planned cost or schedule estimates.1

Affordable Care Act

A 

significant variance is defined as 10 percent over or under the planned 

estimate.

Table 3: Cost and Schedule Performance Information for Affordable Care Act Administration

Reporting 

months

Planned 

days

Projected/ 

actual days

Schedule 

variance 

(planned days–

projected/ 

actual days)

Schedule 

variance 

(in percent) 

Planned 

costs 

(in millions)

Actual 

costs 

(in millions) 

Costs variance 

(planned 

costs–actual 

costs) 

(in millions)

Cost 

variance 

(in percent)

Quarter 1 

2012

— a — a — a — a $27.84 $19.68 $8.16 29.31

Quarter 2 

2012

— a — a — a — a 95.40 72.89 22.51 23.60

Source: Internal Revenue Service data.

Note: Numbers may not add due to rounding.

a

The Internal Revenue Service did not provide us with any data on planned or actual schedule for this 

investment, but reported that it did not experience any variance.

• The Internal Revenue Service (IRS) officials stated that Affordable 

Care Act (ACA) was about 29 percent under planned cost during the 

first quarter of 2012 due to hardware and software acquisitions that 

have been postponed until later in fiscal year 2012.2

• According to IRS officials, ACA was approximately 24 percent under 

planned costs during the second quarter of 2012 due to

• lower than expected labor costs, and

• a delay in the receipt of funding for this quarter.

 

1

According to IRS, major investments are defined by the Department of Treasury as those 

that cost $10 million in either current year or budget year, or $50 million over the 5 year 

period extending from the prior year through budget year +2.

2

IRS is implementing the Patient Protection and Affordable Care Act requirements under 

the investment name of ACA. 

Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances
Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances

Page 63 GAO-12-603 IRS 2013 Budget

Current Customer Account Data Engine

Table 4: Cost and Schedule Performance Information for Current Customer Account Data Engine

Reporting 

months

Planned 

days

Projected/ 

actual days

Schedule 

variance 

(planned days 

–projected/ 

actual days)

Schedule 

variance 

(in percent) 

Planned 

costs 

(in millions)

Projected 

costs 

(in millions)

Costs variance 

(planned 

costs–

projected 

costs) 

(in millions)

Cost 

variance 

(in percent)

October 2011 549 549 0 0 $1.95 $1.95 0.00 0.00

November 

2011

549 549 0 0 1.95 1.95 0.00 0.00

December 

2011

549 549 0 0 1.95 1.95 0.00 0.00

January 2012 549 549 0 0 1.95 1.95 0.00 0.00

February 2012 549 549 0 0 1.95 2.68 -0.73 -37.48

March 2012 549 549 0 0 1.95 1.97 -0.03 -1.41a

Source: IRS data.

Note: Numbers may not add due to rounding.

a

Variance under 10 percent is not considered significant.

• According to IRS officials, Current Customer Account Data Engine3

 

3

According to IRS, the Current CADE investment ended on December 31, 2011. 

(CADE) was significantly over planned costs in February 2012 due to 

the need for additional resources to help close down the system and 

redistribute hardware and software assets to other projects within the 

IRS.
Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances

Page 64 GAO-12-603 IRS 2013 Budget

Integrated Customer Communications Environment

Table 5: Cost and Schedule Performance Information for Integrated Customer Communication Environment

Reporting 

months

Planned 

days

Projected/ 

actual days

Schedule 

variance 

(planned days 

–projected/ 

actual days)

Schedule 

variance 

(in percent) 

Planned 

costs 

(in millions)

Projected 

costs 

(in millions)

Costs variance 

(planned 

costs–

projected 

costs) 

(in millions)

Cost 

variance 

(in percent)

October 2011 303 303 0 0 $3.74 $3.74 0.00 0.00

November 

2011

303 303 0 0 3.74 3.74 0.00 0.00

December 

2011

303 303 0 0 3.74 2.76 0.98 26.16

January 2012 303 303 0 0 3.74 2.76 0.98 26.16

February 2012 303 303 0 0 3.74 2.76 0.98 26.16

March 2012 303 303 0 0 3.74 2.49 1.25 33.47

Source: IRS data.

Note: Numbers may not add due to rounding.

• According to IRS officials, although contractor costs were higher than 

originally estimated, spending on Integrated Customer 

Communication Environment (ICCE) was significantly less than 

originally planned between December 2011 and March 2012 because:

• costs associated with Foreign Account Tax Compliance Act were 

removed as part of plans to create a new, separate investment for 

IRS, and

• some indirect costs associated with the Federal Student Aid 

activity may not have been fully reported within the financial

system. 
Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances

Page 65 GAO-12-603 IRS 2013 Budget

Integrated Submission and Remittance Processing System

Table 6: Cost and Schedule Performance Information for Integrated Submission and Remittance Processing System

Reporting 

months

Planned 

days

Projected/ 

actual days

Schedule 

variance 

(planned 

days –

projected/ 

actual days)

Schedule 

variance (in 

percent) 

Planned 

costs (in 

millions)

Projected 

costs (in 

millions)

Costs 

variance 

(planned 

costs–

projected 

costs) (in 

millions)

Cost 

variance 

(in percent)

October 2011 547 547 0 0 $0.27 $0.27 0.00 0.00

November 

2011

547 547 0 0 0.27 0.27 0.00 0.00

December 

2011

547 547 0 0 0.27 0.27 0.00 0.00

January 2012 547 547 0 0 0.27 0.27 0.00 0.00

February 2012 547 577 -30 -5.48a 0.27 0.27 0.00 1.11a

March 2012 547 577 -60 -10.97 0.27 0.27 0.00 1.11a

Source: IRS data.

Note: Numbers may not add due to rounding.

a

Variance under 10 percent is not considered significant.

• According to IRS officials, Integrated Submission and Remittance 

Processing System (ISRP) was approximately 11 percent behind 

planned schedule as of March 2012. IRS officials stated that this 

variance was caused by delays in the programming requirements for 

two projects, which extended the projected completion date by 2 

months.
Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances

Page 66 GAO-12-603 IRS 2013 Budget

IRS Main Frames and Servers Services and Support

Table 7: Cost and Schedule Performance Information for IRS Main Frames and Servers Services and Support

Reporting 

months

Planned 

days

Projected/ 

actual days

Schedule 

variance 

(planned days 

–projected/ 

actual days)

Schedule 

variance 

(in percent) 

Planned 

costs 

(in millions)

Projected 

costs 

(in millions)

Costs variance 

(planned 

costs–

projected 

costs) 

(in millions)

Cost 

variance 

(in percent)

October 2011 —a —a —a —a —a —a —a —a

November 

2011

—a —a —a —a —a —a —a —a

December 

2011

498 1056 -558 -112.05 $19.68 $19.68 0.00 0.00

January 2012 249 863 -614 -246.59 9.84 9.84 0.00 0.00

February 2012 249 863 -614 -246.59 9.84 9.84 0.00 0.00

March 2012 737 737 0 0 9.84 9.84 0.00 0.00

Source: IRS data.

Note: Numbers may not add due to rounding.

a

IRS did not provide cost or schedule data for these months, but reported there were no cost or 

schedule issues.

• According to IRS officials, IRS Main Frames and Servers Services 

and Support (MSSS) was significantly behind planned schedule 

between December 2011 and February 2012. IRS officials stated that 

the delays were caused by several issues including:

• the Storage Area Network (SAN) Switch Refresh project 

procurement process exceeding anticipated time frames, and

• the Modernized Infrastructure Solaris 10 & Supporting 

Technologies Upgrade (MISSTU) project experienced resource 

conflicts and various technical issues.
Appendix V: Major Information Technology 

Investments with Significant Cost and 

Schedule Variances

Page 67 GAO-12-603 IRS 2013 Budget

Modernized e-File

Table 8: Cost and Schedule Performance Information for Modernized e-File

Reporting 

months

Planned 

days

Projected/ 

actual days

Schedule 

variance 

(planned days 

–projected/ 

actual days)

Schedule 

variance 

(in percent) 

Planned 

costs 

(in millions)

Projected 

costs 

(in millions)

Costs variance 

(planned costs–

projected 

costs) 

(in millions)

Cost 

variance 

(in percent)

October 2011 837 837 0 0 $62.03 $62.03 0.00 0.00

November 

2011

837 837 0 0 62.03 67.83 -5.80 -9.35a

December 

2011

837 837 0 0 62.03 67.83 -5.80 -9.35a

January 2012 837 837 0 0 62.03 67.83 -5.80 -9.35a

February 2012 837 837 0 0 62.03 68.47 -6.44 -10.39

March 2012 837 837 -61 -7.29a 62.03 73.67 -11.64 -18.77

Source: IRS data.

Note: Numbers may not add due to rounding.

a

Variance under 10 percent is not considered significant.

• According to IRS, Modernized e-File (MeF) is approximately 19 

percent over planned costs in February and March 2012 due to a 

number of unanticipated and unplanned work activities, such as, 

performance testing and the purchase of additional hardware and 

software.
Appendix VI: GAO Products with Open Matters 

for Congress and Recommendations to the IRS 

Regarding Tax Administration

Page 68 GAO-12-603 IRS 2013 Budget

Thirty-three GAO products contain 10 matters for Congress and 96 

recommendations to the Internal Revenue Service (IRS). Thirty-two 

increase revenue, 7 increase savings, 16 increase both savings and 

revenue, and 51 have indirect financial benefits.

Table 9: List of Open Matters for Congress and Recommendations to IRS That Could Result In Potential Savings or Increased 

Revenues

Report title and number

Website for current status of matters and/or 

recommendations 

Potential 

financial 

impact

Detecting abusive tax avoidance transactions

Abusive Tax Avoidance Transactions: IRS Needs Better Data to Inform 

Decisions about Transactions (GAO-11-493) 

http://www.gao.gov/products/GAO-11-493 IR, IFB

Enhancing budget requests

IRS Budget 2012: Extending Systematic Reviews of Spending Could 

Identify More Savings Over Time (GAO-11-547) 

http://www.gao.gov/products/GAO-11-547 IS

Enhancing collection of user fees

User Fees: Additional Guidance and Documentation Could Further 

Strengthen IRS’s Biennial Review of Fees (GAO-12-193) 

http://www.gao.gov/products/GAO-12-193 IFB

Enhancing electronic filing

E-Filing Tax Returns: Penalty Authority and Digitizing More Paper 

Return Data Could Increase Benefits (GAO-12-33) 

http://www.gao.gov/products/GAO-12-33 IS, ISR, 

IFB

Electronic Tax Return Filing: Improvements Can Be Made before 

Mandate Becomes Fully Implemented (GAO-11-344) 

http://www.gao.gov/products/GAO-11-344 IS, IFB

Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer 

Service and Enforcement for the 2010 Filing Season (GAO-09-1026) 

http://www.gao.gov/products/GAO-09-1026 ISR 

Tax Administration: 2007 Filing Season Continues Trend of 

Improvement, but Opportunities to Reduce Costs and Increase Tax 

Compliance Should Be Evaluated (GAO-08-38) 

http://www.gao.gov/products/GAO-08-38 ISR 

Enhancing electronic filing and improving accuracy of paid 

preparers

Tax Administration: Many Taxpayers Rely on Tax Software and IRS 

Needs to Assess Associated Risks (GAO-09-297) 

http://www.gao.gov/products/GAO-09-297 IFB

Enhancing internal controls

Management Report: Improvements Are Needed to Enhance the 

Internal Revenue Service’s Internal Controls and Operating 

Effectiveness (GAO-11-494R) 

http://www.gao.gov/products/GAO-11-494R IS, IFB

Enhancing taxpayer services

2011 Tax Filing: Processing Gains, but Taxpayer Assistance Could Be 

Enhanced by More Self-Service Tools (GAO-12-176) 

http://www.gao.gov/products/GAO-12-176 ISR 

Expanding use of math error authority or third party data

2011 Tax Filing: IRS Dealt with Challenges to Date but Needs 

Additional Authority to Verify Compliance (GAO-11-481) 

http://www.gao.gov/products/GAO-11-481 IR

Appendix VI: GAO Products with Open 

Matters for Congress and Recommendations 

to the IRS Regarding Tax Administration 
Appendix VI: GAO Products with Open Matters 

for Congress and Recommendations to the IRS 

Regarding Tax Administration

Page 69 GAO-12-603 IRS 2013 Budget

Report title and number

Website for current status of matters and/or 

recommendations 

Potential 

financial 

impact

Recovery Act: IRS Quickly Implemented Tax Provisions, but Reporting 

and Enforcement Improvements Are Needed (GAO-10-349) 

http://www.gao.gov/products/GAO-10-349 ISR 

Tax Administration: IRS’s 2008 Filing Season Generally Successful 

Despite Challenges, although IRS Could Expand Enforcement during 

Returns Processing (GAO-09-146) 

http://www.gao.gov/products/GAO-09-146 ISR 

2009 Tax Filing Season: IRS Met Many 2009 Goals, but Telephone 

Access Remained Low, and Taxpayer Service and Enforcement Could 

Be Improved (GAO-10-225) 

http://www.gao.gov/products/GAO-10-225 IR, ISR

Implementing Information Reporting and Document Matching 

(IRDM) system

IRS Management: Cost Estimate for New Information Reporting System 

Needs to be Made More Reliable (GAO-12-59) 

http://www.gao.gov/products/GAO-12-59 IFB

Information Reporting: IRS Could Improve Cost Basis and Transaction 

Settlement Reporting Implementation (GAO-11-557) 

http://www.gao.gov/products/GAO-11-557 IFB 

Implementing Patient Protection and Affordable Care Act (PPACA)

Patient Protection and Affordable Care Act: IRS Should Expand Its 

Strategic Approach to Implementation (GAO-11-719) 

http://www.gao.gov/products/GAO-11-719 IFB

Improving corporate tax compliance

Tax Gap: Actions Needed to Address Noncompliance with SCorporation Tax Rules (GAO-10-195) http://www.gao.gov/products/GAO-10-195 IR, IFB

Improving individual or corporate tax compliance

Financial Derivatives: Disparate Tax Treatment and Information Gaps 

Create Uncertainty and Potential Abuse (GAO-11-750) 

http://www.gao.gov/products/GAO-11-750 IFB

Federal Tax Collection: Potential for Using Passport Issuance to 

Increase Collection of Unpaid Taxes (GAO-11-272) 

http://www.gao.gov/products/GAO-11-272 IR

Improving international tax administration

Tax Administration: IRS’s Information Exchanges with Other Countries 

Could Be Improved through Better Performance Information 

(GAO-11-730) 

http://www.gao.gov/products/GAO-11-730 IFB

Improving management of information technology (IT) investments

Investment Management: IRS Has a Strong Oversight Process but 

Needs to Improve How It Continues Funding Ongoing Investments 

(GAO-11-587) 

http://www.gao.gov/products/GAO-11-587 IS, IFB

Improving real estate tax compliance

Tax Administration: Expanded Information Reporting Could Help IRS 

Address Compliance Challenges with Forgiven Mortgage Debt 

(GAO-10-997) 

http://www.gao.gov/products/GAO-10-997 IR

Home Mortgage Interest Deduction: Despite Challenges Presented by 

Complex Tax Rules, IRS Could Enhance Enforcement and Guidance

(GAO-09-769) 

http://www.gao.gov/products/GAO-09-769 IR
Appendix VI: GAO Products with Open Matters 

for Congress and Recommendations to the IRS 

Regarding Tax Administration

Page 70 GAO-12-603 IRS 2013 Budget

Report title and number

Website for current status of matters and/or 

recommendations 

Potential 

financial 

impact

Real Estate Tax Deduction: Taxpayers Face Challenges in Determining 

What Qualifies; Better Information Could Improve Compliance

(GAO-09-521) 

http://www.gao.gov/products/GAO-09-521 IR

Improving rental real estate compliance

Tax Gap: Actions That Could Improve Rental Real Estate Reporting 

Compliance (GAO-08-956) 

http://www.gao.gov/products/GAO-08-956 IR

Improving sole proprietors’ compliance

Tax Gap: Limiting Sole Proprietor Loss Deductions Could Improve 

Compliance but Would Also Limit Some Legitimate Losses 

(GAO-09-815) 

http://www.gao.gov/products/GAO-09-815 IFB

Improving third party compliance

Tax Gap: IRS Could Do More to Promote Compliance by Third Parties 

with Miscellaneous Income Reporting Requirements (GAO-09-238) 

http://www.gao.gov/products/GAO-09-238 IR, IFB

Improving use of whistleblower claims

Tax Whistleblowers: Incomplete Data Hinders IRS’s Ability to Manage 

Claim Processing Time and Enhance External Communication

(GAO-11-683) 

http://www.gao.gov/products/GAO-11-683 IR, IFB

Increasing collection of unpaid payroll taxes

Tax Compliance: Businesses Owe Billions in Federal Payroll Taxes 

(GAO-08-617) 

http://www.gao.gov/products/GAO-08-617 IFB

Increasing tax debt collection

Tax Debt Collection: IRS Needs to Better Manage the Collection 

Notices Sent to Individuals (GAO-09-976) 

http://www.gao.gov/products/GAO-09-976 ISR 

Promoting effective use of third-party data

Tax Gap: IRS Has Modernized Its Business Nonfiler Program but Could 

Benefit from More Evaluation and Use of Third-Party Data 

(GAO-10-950) 

http://www.gao.gov/products/GAO-10-950 IR, IFB

Reducing tax evasion

Tax Gap: IRS Can Improve Efforts to Address Tax Evasion by Networks 

of Businesses and Related Entities (GAO-10-968) 

http://www.gao.gov/products/GAO-10-968 IFB

Legend: IR – Increase revenue, IS – Increase savings, ISR – Increase savings and revenue, IFB – 

Indirect financial benefit.

Source: GAO.

Notes: Products with open matters and recommendations identified as of March 19, 2012. Some 

products may have matters and/or recommendations that do not have potential financial benefits or 

could be placed in different categories than provided above.
Appendix VII: GAO Contact and Staff 

Acknowledgments

Page 71 GAO-12-603 IRS 2013 Budget

James R. White, (202) 512-9110 or WhiteJ@gao.gov

In addition to the contact named above, Libby Mixon, Assistant Director; 

Mark Abraham; Amy Bowser; Dean Campbell; Mary Fike; Sairah Ijaz; Erik 

Kjeldgaard; Paul Middleton; Ed Nannenhorn; Sabine Paul; Cynthia 

Saunders; Mark Ryan; and Robyn Trotter made key contributions to this 

report.

Appendix VII: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(450949)
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