IRS 2015 BUDGET

Long-Term Strategy 

and Return on 

Investment Data 

Needed to Better 

Manage Budget 

Uncertainty and Set 

Priorities

Report to Congressional Committees

June 2014

GAO-14-605

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-605, a report to 

congressional committees.

June 2014

IRS 2015 BUDGET

Long-Term Strategy and Return on Investment Data 

Needed to Better Manage Budget Uncertainty and Set 

Priorities

Why GAO Did This Study

The financing of the federal 

government depends largely upon the 

IRS’s ability to collect taxes, including 

providing taxpayer services that make 

voluntary compliance easier and 

enforcing tax laws to ensure 

compliance with tax responsibilities. 

For fiscal year 2015, the President 

requested a $12.5 billion budget for 

IRS, a 10.5 percent increase over the 

fiscal year 2014 budget. 

Because of the size of IRS’s budget 

and the importance of its service and 

compliance programs for all taxpayers, 

GAO was asked to review the fiscal 

year 2015 budget request for IRS. (In 

April 2014, GAO reported interim 

information on IRS’s budget.) Among 

other things, this report assesses IRS’s 

(1) strategy to address budget cuts and 

(2) use of ROI analysis. To conduct 

this work, GAO reviewed the fiscal 

year 2015 budget justification, IRS and 

OMB budget guidance, and IRS 

workload and performance data from 

fiscal years 2009 to 2015. GAO also 

interviewed IRS officials and the 

National Taxpayer Advocate.

What GAO Recommends

GAO recommends that IRS (1) 

develop a long-term strategy to 

manage uncertain budgets, and (2) 

calculate actual ROI for implemented 

initiatives, compare actual ROI to 

projected ROI, and use the data to 

inform resource decisions. IRS agreed 

with GAO’s recommendations, noting 

that it initiated a review of its base 

budget to ensure resources are aligned 

with its strategic plan and ROI is one of 

several factors relevant to making 

resource allocation decisions.

What GAO Found

Since fiscal year 2010, the Internal Revenue Service (IRS) budget has declined 

by about $900 million. As a result, funding is below fiscal year 2009 levels. 

IRS Appropriations Fiscal Years 2009 through 2014 and Fiscal Year 2015 Requested 

Appropriation 

Staffing has also declined by about 10,000 full-time equivalents since fiscal year 

2010, and performance has been uneven. For example, between fiscal years 

2009 and 2013, the percentage of callers seeking live assistance and receiving it 

fluctuated between 61 percent and 74 percent. IRS took some steps to address 

budget cuts, such as reduced travel and training. 

IRS’s strategic plan does not address managing budget uncertainty, although 

there are several indicators that funding will be constrained for the foreseeable 

future. For example, in May 2014, the Office of Management and Budget (OMB)

generally required a 2 percent reduction in agencies’ fiscal year 2016 budget 

submission. OMB guidance also requires agencies to develop strategies for 

operating in an uncertain budget environment. According to IRS, extensive senior 

leadership turnover has contributed to the lack of a long-term strategy. Without a 

strategy, IRS may not be able to operate effectively and efficiently in an uncertain 

budget environment.

For fiscal year 2015, IRS calculated projected return on investment (ROI) for 

most of its enforcement initiatives. However, due to limitations—such as 

estimating the indirect effect coverage has on voluntary compliance—IRS does 

not calculate actual ROI or use it for resource decisions. These limitations are 

important, which is why GAO recommended in 2012 that IRS explore developing 

such estimates. Given that these limitations could take time to address, GAO

demonstrated how IRS could use existing ROI data to review disparities across 

different enforcement programs to inform resource allocation decisions. 

Comparing projected and actual ROI is consistent with OMB guidance. While not 

the only factor in making resource decisions, actual ROI could provide useful 

insights on the productivity of a program.

View GAO-14-605. For more information, 

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

9110 or mctiguej@gao.gov. 
Page i GAO-14-605 IRS 2015 Budget

Letter 1 

Background 3

IRS Has Taken Some Steps to Address Declining Budgets in the 

Short-Term, but Lacks a Long-Term Strategy 6

IRS Does Not Use Return on Investment Data to Evaluate the 

Performance of Revenue Initiatives or to Inform Enforcement 

Resource Allocation Decisions 18

Since Inception, IRS Has Spent $859 Million to Implement 

PPACA, but an Updated IT Cost Estimate Is Unavailable for 

Review 25

IRS Implemented Three of Seven Prior Recommendations 27

Conclusion 30

Recommendations for Executive Action 30

Agency Comments and Our Evaluation 31

Appendix I Objectives, Scope, and Methodology 33

Appendix II GAO Products with Open Matters for Congress and 

Recommendations to the Internal Revenue Service (IRS) 36

Appendix III Comments from the Internal Revenue Service 39

Appendix IV GAO Contact and Staff Acknowledgments 41

Tables

Table 1: Full-Time Equivalents Allocated to Implement New Laws 

and Priority Programs, Fiscal Years 2009 through 2013 

(Actual), 2014 (Enacted), and 2015 (Requested) 12

Table 2: Fiscal Year 2015 New Enforcement Initiatives 19

Table 3: Actual Return on Investment (ROI) for Major IRS 

Enforcement Programs (Dollars in Millions) 23

Table 4: Patient Protection and Affordable Care Act Spending, 

Fiscal Years 2010 to 2014 (in Millions) 25

Contents
Page ii GAO-14-605 IRS 2015 Budget

Table 5: IRS Fiscal Year 2014 Planned and Actual Spending on 

Patient Protection and Affordable Care Act by Initiative (in 

Millions) 26

Table 6: Fiscal Year 2015 Budget Request for IRS to Implement 

the Patient Protection and Affordable Care Act (in 

Millions) 26

Table 7: Prior GAO Recommendations Implemented by IRS 27

Table 8: Budget-Related Recommendations to IRS that Remain 

Open 28

Table 9: List of Open Matters for Congress and 

Recommendations to IRS That Could Result In Potential 

Savings or Increased Revenues 36

Figures

Figure 1: IRS Appropriations, Fiscal Years 2009 through 2014, 

and Fiscal Year 2015 Request 8

Figure 2: IRS Full-Time Equivalents Funded through 

Appropriations, Fiscal Years 2009 through 2013 (Actual), 

2014 (Enacted), and 2015 (Requested) 9

Figure 3: IRS Return Examination and Collection Coverage 

Measures, Fiscal Years 2009 through 2013 (Actual) and 

2014 and 2015 (Target) 10

Figure 4: IRS Appropriations, Fiscal Years 2009 through 2014, 

and Requested Appropriations, Fiscal Years 2009 

through 2015 17
Page iii GAO-14-605 IRS 2015 Budget

Abbreviations

BCA Budget Control Act of 2011

CI Criminal Investigations

HIRIF Health Insurance Reform Implementation Fund

FATCA Foreign Account Tax Compliance Act

FTE Full-time equivalent

IRDM Information Reporting and Document Matching

IT Information Technology

IRS Internal Revenue Service 

LB&I Large Business and International Division

NTA National Taxpayer Advocate

OMB Office of Management and Budget

PPACA Patient Protection and Affordable Care Act

PPA Programs, projects, or activities

RAS Research, Analysis, and Statistics Division

ROI Return on investment

RRP Return Review Program

SB/SE Small Business/Self Employed Division

TIGTA Treasury Inspector General for Tax Administration

W&I Wage and Investment Division

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Page 1 GAO-14-605 IRS 2015 Budget

441 G St. N.W.

Washington, DC 20548

June 12, 2014

The Honorable Tom Udall

Chairman

The Honorable Mike Johanns

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

House of Representatives

The financing of the federal government depends largely upon the 

Internal Revenue Service’s (IRS) ability to collect taxes, including 

providing taxpayers with services to make voluntary compliance easier 

and enforcing tax laws to ensure compliance with tax responsibilities. For 

fiscal year 2015, the President requested $12.5 billion for IRS. This is an 

increase of 10.5 percent ($1.2 billion) over the fiscal year 2014 

appropriation. In April 2014, we reported that IRS has absorbed 

approximately $900 million in budget cuts since fiscal year 2010.1 In that 

interim report, we found the cuts resulted in significant staffing declines 

and uneven performance. For example, we reported that IRS staffing has 

been reduced by about 8,000 full-time equivalents (FTE) since fiscal year 

2009. We also reported that while IRS provided a 67 percent level of 

telephone services for fiscal year 2014 through March 15, 2014 compared 

to 61 percent for the prior entire fiscal year, average wait times to reach a 

 

1

GAO, Internal Revenue Service: Absorbing Budget Cuts Has Resulted in Significant 

Staffing Declines and Uneven Performance, GAO-14-534R (Washington, D.C.: Apr. 21, 

2014).
 

Page 2 GAO-14-605 IRS 2015 Budget

telephone assistor had almost doubled since fiscal year 2009—from 8.8 

minutes to 16.8 minutes as of mid-March 2014.2

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 2015 budget request for IRS. In this report we (1) assess IRS’s 

strategy to address the budget cuts, including sequestration; (2) assess 

any new use of return on investment (ROI) analysis; (3) summarize 

requested funding and actual and planned spending for the Patient 

Protection and Affordable Care Act (PPACA),3 and assess the updated 

PPACA information technology (IT) cost estimate; and (4) describe IRS’s 

progress in implementing open GAO budget-related recommendations 

and list any GAO open matters for Congress and recommendations for 

executive action that could result in potential savings or increased 

revenue for IRS.

To conduct our work for all objectives, we reviewed key documents—

such as the fiscal year 2015 congressional justification for IRS—and

interviewed IRS officials. For the first objective, we also analyzed IRS 

data, including FTE and performance data for key IRS operations; 

reviewed executive orders, and Office of Management and Budget (OMB) 

guidance on improving government performance and efficiency; and 

interviewed the National Taxpayer Advocate. For the second objective, 

we reviewed IRS and OMB guidance, and interviewed officials from the 

IRS Office of Corporate Budget and its Research, Analysis, and Statistics 

(RAS) Division. For the third objective, we summarized PPACA 

information by funding source since inception and analyzed new 

information on actual and planned spending for fiscal year 2014. We 

could not assess the updates to the PPACA cost estimate because the 

updated September 2013 cost estimate is still under review.4 For the 

fourth objective, we obtained information on our open recommendations 

 

2

This report updates our interim report. As of April 19, 2014, after the completion of the 

filing season, fiscal year 2014 telephone level of service was 67 percent and wait time was 

17.0 minutes.

3

Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and 

Education Reconciliation Act of 2010 (HCERA), Pub. L. No. 111-152, 124 Stat. 1029, 

which we refer to collectively as PPACA. IRS refers to PPACA by the acronym for the 

Affordable Care Act, ACA.

4

We will report on the September 2013 PPACA cost estimate once it is released for our 

review. 
 

Page 3 GAO-14-605 IRS 2015 Budget

from various IRS officials and analyzed relevant documentation to 

determine if the recommendations were implemented. 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. For 

further details on our scope and methodology, see appendix I.

We conducted this performance audit from November 2013 to June 2014 

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.

The congressional budget justification for IRS presents funding and FTE 

information at two levels: (1) appropriation account and (2) budget 

activity. In addition, it provides descriptions of program activities within 

each budget activity. IRS has four appropriation accounts:

• Enforcement. This account provides funding for the examination of 

tax returns, both domestic and international; administrative and 

judicial settlement of taxpayer appeals of examination findings; 

technical rulings; monitoring of employee pension plans; 

determination of qualifications of organizations seeking tax-exempt 

status; examination of tax returns of exempt organizations; 

enforcement of statutes relating to detection and investigation of 

criminal violations of the internal revenue laws; identification of 

underreporting of tax obligations; securing of unfiled tax returns; and 

collecting unpaid accounts.

• Operations Support. This account provides funding for overall 

planning, direction, and support for the IRS, including shared service 

support related to facilities services, rent payments, printing, postage, 

and security. This appropriation funds headquarters policy and 

management activities such as corporate support for strategic 

planning; communications and liaison; finance; human resources; 

equity, diversity and inclusion; research and statistics of income; and 

necessary expenses for information systems and telecommunication 

Background

IRS Budget Presentation
 

Page 4 GAO-14-605 IRS 2015 Budget

support, including development, security, and maintenance of IRS 

information systems.

• Taxpayer Services. This account provides funding for taxpayer 

service activities and programs. This includes printing forms and 

publications, processing tax returns and related documents, offering 

filing and account services, ensuring the availability of taxpayer 

assistance, and providing taxpayer advocacy services.

• Business Systems Modernization. This account provides resources 

for the planning and capital asset acquisition of IT to modernize the 

IRS business systems.

Budget activities divide appropriation accounts into additional functions. 

For example, the Enforcement appropriation is broken into three budget 

activities: Investigations, Exam and Collections, and Regulatory. Each 

budget activity, in turn, has multiple program activities. For example, 

Exam and Collections has 18 program activities.

The congressional justification presents how budget resources could be 

allocated to appropriation accounts. IRS is restricted from reprogramming 

funds within appropriation accounts without committee approval if the 

reprogramming will augment existing programs, projects, or activities 

(PPA) in excess of $5 million or 10 percent, whichever is less.5 IRS refers 

to its PPAs as “budget activities.” IRS generally notifies Congress if it 

expects to reprogram funds from one budget activity to another. 

However, IRS is not restricted from shifting resources between program 

activities, which are activities within a budget activity and not subject to 

reprogramming restrictions. Further, while IRS cannot transfer resources 

from one appropriation account to another without specific statutory 

authority to do so, IRS could shift resources between any of the 18 

program activities within the Exam and Collection budget activity without 

Congressional approval or notification. 

 

5

See, for example, the Consolidated Appropriations Act, 2014, Pub. L. No. 113-76, div. E, 

title VI, § 608, 128 Stat. 5, 226 (Jan. 17, 2014). Reprogramming shifts funds within an 

appropriation account and, unlike transfers, agencies may reprogram without additional 

statutory authority; however, reprogramming above a statutorily defined threshold often 

involves some form of notification to the congressional appropriations committees, 

authorizing committees, or both.
 

Page 5 GAO-14-605 IRS 2015 Budget

Within the congressional justification, IRS also details its strategic goals 

and objectives for the agency. According to the fiscal year 2015 

congressional justification for IRS, the IRS strategic plan guides program 

and budget decisions and supports the Department of the Treasury Fiscal 

Year 2014 to 2017 Strategic Plan and the Agency Priority Goal of 

expanding the availability and improving the quality of customer service 

options.

The congressional justification also details information on requested 

program increases (new program initiatives). The information includes 

why the funds are needed, how they will be used, and the number of staff 

by position needed to do the work. Some of the new program initiatives 

also include projected return on investment (ROI) calculations—the 

projected additional revenue collected, divided by the projected cost. For 

IRS, projected ROI is an estimate of how the agency expects a program

initiative to perform. IRS defines three types of ROI:

• Revenue producing. The initiative yields direct, measureable results 

through enforcement activities.

• Revenue protecting. The initiative prevents the issuance of 

fraudulent refunds to persons posing as a taxpayer and resolves 

issues prior to issuing a refund.

• Revenue enhancing. The initiative leads to improved revenue 

collection through improvements in case selection, issue identification, 

and enforcement case treatment.

In recent years, some of the new program initiatives have been 

predicated on a program integrity cap adjustment. Congress passes 

these adjustments to allow additional funding above discretionary 

spending limits for certain activities that are expected to generate benefits 

that exceed cost. Of the 22 initiatives in the IRS fiscal year 2015 budget 

request, 17 are predicated on a program integrity cap adjustment.

IRS continues to implement four major new laws passed in recent years:

• PPACA. This law reforms the private insurance market and expands 

health coverage to the uninsured. IRS is responsible for implementing 

new provisions including new taxes, tax credits, and information

reporting requirements.

Implementation of Major 

New Laws
 

Page 6 GAO-14-605 IRS 2015 Budget

• Merchant card reporting. This law requires payment settlement 

entities (e.g., banks) to report fiscal year information and the gross 

amount of reportable payment transactions (i.e., payment card and 

third party network transactions) to IRS.6

• Cost basis reporting. This law requires investment brokers to report 

the adjusted cost basis for certain publicly traded securities and 

whether a gain or loss is short or long-term.7

• Foreign Account Tax Compliance Act (FATCA). This law adds 

reporting and other requirements relating to income from assets held 

abroad by: (1) requiring foreign financial and nonfinancial institutions 

to withhold 30 percent of payments made to such institutions by U.S. 

individuals, unless such institutions agree to disclose the identity of 

such individuals and report on their bank transactions, and (2) 

denying a tax deduction for interest on non-registered bonds issued 

outside the United States.8

IRS’s appropriations have ranged from a low of $10.2 billion in fiscal year 

2005 to a high of $12.1 billion in fiscal year 2010. The fiscal year 2010 

high was in part a result of a program integrity cap adjustment of $890 

million. As we have previously reported, IRS’s budget declined 

 

6

Housing Assistance Tax Act of 2008, Pub. L. No. 110-289, div. C, §3091, 122 Stat. 2654, 

2908-2911 (July 30, 2008).

7

Energy Improvement and Extension Act of 2008, Pub. L. No. 110-343, div. B, §403, 122 

Stat. 3765, 3854-3860 (Oct. 3, 2008).

8

Hiring Incentives to Restore Employment Act, Pub. L. No. 111-147, Title V, 124 Stat. 71, 

97-117 (Mar. 18, 2010).

IRS Has Taken Some 

Steps to Address 

Declining Budgets in 

the Short-Term, but 

Lacks a Long-Term 

Strategy

IRS Has Absorbed 

Substantial Budget Cuts in 

Recent Years
 

Page 7 GAO-14-605 IRS 2015 Budget

approximately $900 million between fiscal years 2010 and 2014.9 These 

cuts reduced IRS’s budget to below fiscal year 2009 funding levels. The 

largest budget reduction ($618 million) occurred in fiscal year 2013 

because of sequestration ($594 million) and a 0.2 percent rescission ($24 

million).10 In fiscal year 2014, IRS’s budget remained essentially flat, with 

an increase of $92 million for the improvement of identification and 

prevention of refund fraud and identity theft, and international and 

offshore compliance issues.11 For fiscal year 2015, the President 

requested $12.5 billion for IRS, an increase of 10.5 percent ($1.2 billion) 

over fiscal year 2014 appropriations. See figure 1.

 

9

GAO-14-534R. This report focused on fiscal years 2009 through 2015. We selected fiscal 

year 2009 as a starting point because fiscal year 2009 was the year prior to IRS’s highest 

appropriation in recent years.

10Sequestration is the reduction or cancellation of budgetary resources provided by 

discretionary appropriations or direct spending laws. Amounts are subject to sequestration 

under a presidential sequester order. On March 1, 2013, the President ordered a 

sequestration to achieve $85.3 billion in reductions across federal government accounts, 

as required by the Balanced Budget and Emergency Deficit Control Act of 1985, as 

amended. See 2 U.S.C. § 901a and Sequestration Order for Fiscal Year 2013 Pursuant to 

Section 251A of the Balanced Budget and Emergency Deficit Control Act, As Amended, 

78 Fed. Reg. 14633 (Mar. 6, 2013).

11Consolidated Appropriations Act, 2014, Pub. L. No. 113-76, div. E, title I, 128 Stat. 5, 

188-89, 190-91 (Jan. 17, 2014).
 

Page 8 GAO-14-605 IRS 2015 Budget

Figure 1: IRS Appropriations, Fiscal Years 2009 through 2014, and Fiscal Year 2015 

Request

Notes: Amounts shown do not include other budgetary resources, such as user fees.

a

Fiscal year 2013 levels represent an across-the-board rescission and reductions required by 

sequestration. 

b

For the fiscal year 2015 request, about $480 million, roughly 40 percent of the requested increase, is 

predicated on a program integrity cap adjustment, meaning Congress must approve funding above 

the discretionary spending limit.

Staffing declined by more than 10,000 FTEs between fiscal years 2010 

and 2014, which reduced IRS’s total FTEs to below fiscal year 2009 

levels. For fiscal year 2015, the President requested an increase of about 

7,000 FTEs over fiscal year 2014, which would bring IRS above fiscal 

year 2012 levels. See figure 2.
 

Page 9 GAO-14-605 IRS 2015 Budget

Figure 2: IRS Full-Time Equivalents Funded through Appropriations, Fiscal Years 

2009 through 2013 (Actual), 2014 (Enacted), and 2015 (Requested)

Notes: Amounts shown do not include FTEs funded with other budgetary resources, such as user 

fees.

a

Fiscal year 2013 levels represent the across-the-board rescission and reductions required by 

sequestration. 

b

For the fiscal year 2015 request, about 2,400 FTEs (roughly 34 percent of the requested increase) 

are predicated on a program integrity cap adjustment, meaning Congress must approve funding 

above the discretionary spending limit. The cost of the fiscal year 2015 initiatives was estimated 

based on a January 1 hire date for most FTEs.

c

Actual FTEs represent the total number of hours worked divided by the number of compensable 

hours applicable to each fiscal year. For example, in fiscal year 2013, there were 2,080 compensable 

hours.

d

Enacted FTEs represent the number of FTEs provided for in the enacted budget.

e

Requested FTEs is the number of FTEs requested in the President’s Budget for IRS.

Amidst these budget reductions, IRS’s performance has declined in 

Enforcement and Taxpayer Services. IRS officials anticipate continued 

declines in fiscal year 2015. As shown in figure 3, IRS lowered its return 

examination and collection coverage targets. For example, the original 

IRS Performance Declined 

in Some Areas
 

Page 10 GAO-14-605 IRS 2015 Budget

audit coverage target for individual examinations was 1 percent for fiscal 

year 2014, but was lowered to 0.8 percent in the fiscal year 2015 

congressional justification.

Figure 3: IRS Return Examination and Collection Coverage Measures, Fiscal Years 

2009 through 2013 (Actual) and 2014 and 2015 (Target)

Notes:

a

Collection coverage is the volume of collection work disposed, compared to the volume of collection 

work available.

b

Examination coverage-business (assets > $10 million) is the number of Large Business and 

International (LB&I) division returns (C and S Corporations with assets over $10 million and all 

partnerships) examined and closed by LB&l during the current fiscal year, divided by the number of 

filings for the preceding calendar year.

c

Automated underreporter coverage is a percentage representing the total number of Wage and 

Investment (W&I) division and Small Business/Self Employed (SB/SE) division contact closures (a 

closure resulting from a case where SB/SE and W&I made contact with a taxpayer), divided by the 

total return filings for the prior year.
 

Page 11 GAO-14-605 IRS 2015 Budget

d

Examination coverage-individual is the sum of all individual Form 1040 returns closed by SB/SE, 

W&I, Tax Exempt and Government Entities and LB&I (Field Exam and Correspondence Exam 

programs) divisions, divided by the total individual return filings for the prior calendar year.

IRS’s performance in assisting taxpayers has also suffered, including 

telephone and correspondence services. Between fiscal years 2009 and 

2013, telephone level of service—the percentage of callers seeking live 

assistance and receiving it—fluctuated between 61 percent and 74 

percent. As of April 19, 2014, after the filing season ended, fiscal year 

2014 telephone level of service was 67 percent.12 In addition, the average 

amount of time a taxpayer had to wait to talk to a telephone assistor 

increased since fiscal year 2009—from 8.8 minutes to 17.0 minutes, as of 

April 19, 2014. Moreover, from fiscal years 2009 through 2013, overage 

correspondence—paper correspondence to which IRS has not responded 

within 45 days of receipt—increased from 25 percent to 47 percent.13

However, according to IRS, the 2014 filing season was relatively smooth, 

which IRS attributes to reduced call volume and fewer tax law changes.

IRS attributes performance declines to sequestration and furloughs. For 

example, the number of individual, high-income, and business return 

audits fell from fiscal year 2012 to 2013 because fewer staff were 

available to conduct audits. Similarly, reports by the IRS Oversight Board 

and the National Taxpayer Advocate (NTA) attribute performance 

declines in part to reduced funding.14

As staffing fell, IRS’s workload increased in some areas as a result of 

statutory mandates and priority programs. For fiscal year 2014, IRS 

allocated 9 percent of its FTEs to these mandates and programs, 

including those to implement four new laws—PPACA, merchant card 

reporting, cost basis reporting, and FATCA. In addition, because 

instances of identity theft are more frequent, IRS has significantly 

increased resources devoted to refund fraud, which includes identity theft. 

 

12From January 1 through April 19, 2014, the telephone level of service was 71 percent.

13The overage correspondence reported is for two IRS units that handle 

correspondence—Submission Processing and Accounts Management—both of which are 

part of W&I. 

14See Internal Revenue Service Oversight Board, “Fiscal Year 2014 Budget 

Recommendation and Special Report, May 2013,” National Taxpayer Advocate, 2013 

Annual Report to Congress, Volume 1 (Dec. 31, 2013). 

IRS Faces an Increased 

Demand for Some 

Services
 

Page 12 GAO-14-605 IRS 2015 Budget

Since IRS began tracking refund fraud in fiscal year 2011, it has more 

than quadrupled the numbers of FTEs allocated to refund fraud, from 

1,018 in fiscal year 2011 to 4,146 FTEs in fiscal year 2014 (about 5 

percent of its total workforce). Table 1 shows the shift in FTEs to 

legislative mandates and priority programs.

Table 1: Full-Time Equivalents Allocated to Implement New Laws and Priority Programs, Fiscal Years 2009 through 2013 

(Actual), 2014 (Enacted), and 2015 (Requested)

Statutory mandates and priority programs

FY 2009 

actual

FY 2010 

actual a FY 2011 

actual a FY 2012 actual a FY 2013 actual a FY 2014 enacted a FY 2015 requested b 

Refund Fraud, Prevention Program (including 

identity theft)

c

–- –- d 1,018 d 3,299 4,146 4,146 4,603

International and Offshore Tax Administration 248 836 2,056 1,987 2,135 1,819 2,151

Patient Protection and Affordable Care Act N/A 31 577 664 701 1,220 2,046

Merchant Card/Cost Basis Reporting 3 35 85 86 90 128 450

Foreign Account Tax Compliance Act N/A N/A 1 20 40 50 394

Return Preparer Oversight (includes Office of 

Professional Responsibility)

43 44 46 166 167 80 186

Return Review Program/Electronic Fraud 

Detection System 

25 44 53 62 104 137 137

Total FTEs 319 990 3,836 6,284 7,383 7,580 9,967

Legend: FY = fiscal year; N/A = not applicable. 

Source: IRS Office of Corporate Budget.

Notes:

a

Actual FTEs represent the total number of hours worked based on IRS payroll data, divided by the 

number of compensable hours applicable to each fiscal year. For example, in fiscal year 2013, there 

were 2,080 compensable hours.

b

Enacted FTEs represent the number of FTEs provided for the enacted budget.

c

Requested FTEs represents the number of FTEs requested in the President’s Budget for IRS.

d

IRS did not track FTEs allocated to refund fraud.

To reduce spending to address sequestration and other budget cuts, IRS 

has taken steps that include the following key efforts:15

• Staff attrition and furloughs. IRS absorbed the majority of its budget 

cuts through staff attrition and furloughs. Of the $567 million in 

 

15The efforts described here do not include all of the savings and efficiencies listed in the 

fiscal year 2015 congressional justification for IRS.

IRS Has Taken Some 

Steps to Address Budget 

Cuts
 

Page 13 GAO-14-605 IRS 2015 Budget

savings realized in fiscal year 2013, $311 million resulted from 

attrition, hiring freezes, and furloughs. IRS implemented an exceptiononly hiring freeze in December 2010. In fiscal year 2013 alone, FTEs 

decreased by more than 2.7 percent—2,978—from fiscal year 2012

as a result of attrition, according to IRS. Of these savings, IRS 

generated $88.5 million from 3 furlough days.16

• Reduced travel and training. IRS substantially reduced employee 

training and related travel. Since fiscal year 2010, IRS reduced 

training costs by 83 percent and training-related travel costs by 87 

percent by limiting employee travel and training to mission-critical 

projects. From fiscal years 2009 through 2013, IRS reduced the 

amount it spent per employee on training from $1,600 to $200, 

according to data provided by IRS. Reductions of this magnitude are 

not sustainable, according to IRS officials. For fiscal year 2013, IRS 

reported a savings of $56.2 million by reducing agency-wide, nontechnical training and non-case related travel. IRS attributes the 

savings to a greater use of technology and deferral of some standard 

training. IRS noted that in fiscal year 2013 the training budget was cut 

so the funds would be available to minimize furlough days and 

thereby maintain service to taxpayers.

• E-file savings. It costs IRS much less to process electronic returns 

than paper returns. IRS reported receiving 3.5 million fewer paper 

returns in fiscal year 2013 and 4.2 million more electronically filed 

returns, compared to fiscal year 2012. According to the fiscal year 

2015 congressional justification, IRS realized savings of $11 million 

and 209 FTEs in fiscal year 2013 as a result of these changes, which 

exceeded projected savings by $2.4 million and 32 FTEs.

• Space reduction. IRS reported it completed 89 projects in fiscal year 

2013 to reduce the amount of physical space it uses. As a result, IRS 

will rent 557,779 fewer square feet, which will save $15.7 million in 

rent annually. Further, IRS approved 30 more such projects in fiscal 

year 2014, which IRS estimates will reduce its space needs by 

another 350,000 square feet, producing an additional savings of about 

$11.3 million annually.

 

16IRS reduced the number of furlough days to 3 days in part by exercising its authority to 

carry over roughly $52 million in unobligated funds from fiscal year 2012 appropriations. 
 

Page 14 GAO-14-605 IRS 2015 Budget

In addition, to address budget cuts, IRS has taken steps that it anticipates 

will produce savings in fiscal years 2014 and 2015.

• Telephone and walk-in services. In fiscal year 2014, IRS reduced or 

eliminated certain telephone and walk-in services. These actions are 

consistent with our finding in December 2012 that IRS needed to 

dramatically revise its strategy for providing telephone and 

correspondence services, and that incremental efficiency gains would 

not be enough to reverse service declines.17 Specifically, IRS

• limited telephone assistance to only basic tax law questions during 

the filing season and reassigned assistors to work account-related 

inquiries;

• launched the “Get Transcript” tool, which allows taxpayers to 

obtain a viewable and printable transcript on www.irs.gov, and 

redirected taxpayers to automated tools for additional guidance;

• redirected refund-related inquiries to automated services and did 

not answer refund inquiries until 21 days after a tax return was 

filed electronically or 6 weeks after a return was filed by paper 

(unless the automated service directed the taxpayer to contact 

IRS);

• limited access to the Practitioner Priority Services line to only 

those practitioners working tax account issues;

• limited live assistance and redirected requests for domestic 

employer identification numbers to IRS’s online tool; and

• eliminated free return preparation and reduced other services at 

IRS’s walk-in sites.

• IT reductions. In part because of a lack of funding, IRS put a hold on 

aspects of two major IT projects:

• Information Reporting and Document Matching (IRDM). This 

program is intended to improve business taxpayer compliance by 

matching business information returns (e.g., Form 1099-K) with 

individual tax returns to detect potential income underreporting.

According to IRS IT officials, during the hold IRS will determine 

the best case management tool to use to meet IRDM’s program 

requirements. IRS plans to leverage an off-the-shelf solution, 

which IRS believes will be more cost effective than building one.

 

17See GAO, 2012 Tax Filing: IRS Faces Challenges Providing Service to Taxpayers and 

Could Collect Balances Due More Effectively, GAO-13-156 (Washington, D.C.: Dec. 18, 

2012). 
 

Page 15 GAO-14-605 IRS 2015 Budget

• Return Review Program (RRP). When fully deployed, RRP is 

expected to make use of leading-edge technology to detect, 

resolve, and prevent fraud. IRS expects to complete a plan to 

move beyond the hold on RRP in the summer of 2014. Officials 

said the plan will help inform IRS’s funding needs for RRP.

IRS does not outline a framework for how it should operate in an 

uncertain budget environment in either its fiscal year 2009 through 2013 

strategic plan or its fiscal year 2014 goals and objectives included in the 

fiscal year 2015 congressional justification for IRS. While IRS has taken 

steps in the short-term to address budget cuts (including sequestration)—

such as exception-only hiring and reducing or eliminating some telephone 

and walk-in services—it does not have a strategy to operate in an 

uncertain budget environment over the long-term.

Further, we found that IRS absorbed the majority of cuts as a result of 

actions that were not part of a long-term strategy. According to officials 

from IRS’s Office of Corporate Budget, IRS has absorbed the majority of 

cuts through attrition and, as a result, the programs that experienced the 

most attrition were the programs that absorbed the most cuts.18 In fiscal 

years 2012 through 2013, IRS absorbed roughly $516 million through

attrition, nearly $383 million from enforcement activities, according to data 

provided by IRS. Officials also noted IRS has taken large budget cuts 

over the last several years. As IRS continues to operate in an uncertain 

budget environment, it continues to examine and prioritize what it can cut 

and what it can postpone. According to the NTA, the budget cuts have 

caused IRS to operate in crisis mode—reacting to external changes and 

putting out fires. The NTA also stated that IRS has no overall, cohesive 

strategy to understand what kind of services it should be providing and 

when to eliminate a service.

In response to our questions about IRS’s lack of a long-term strategy, 

officials noted that one key problem has been the extensive turnover in 

senior leadership across the agency. Nineteen of 46 members—over 40 

percent—of IRS’s Senior Executive Team were on-board on or after 

October 1, 2013, including the new IRS Commissioner, who took office in 

 

18However, IRS officials note that it has allowed exceptions to the hiring freeze for high 

priority programs to help mitigate the impact of attrition in those areas. 

IRS Has No Long-Term 

Strategy to Address an 

Uncertain Budget 

Environment
 

Page 16 GAO-14-605 IRS 2015 Budget

December 2013.19 However, IRS began an extensive review of its base

budget in April 2014 in order to collect detailed spending and 

performance information for each of its distinct programs. Once IRS 

completes this review, management plans to determine the proper 

funding levels for each program and how to realign existing resources.

While this is an important start, it may not be sufficient over the long term. 

There are a number of indications that funding is unlikely to soon return to 

the growing and high budget levels IRS experienced in fiscal years 2010 

and 2011.20 First, our work on the nation’s long-term fiscal outlook shows 

that growth in spending for federal health care and retirement programs 

will place increasing pressure on discretionary spending.21 Second, in 

May 2014, OMB generally required a 2 percent reduction in agencies’ 

fiscal year 2016 budget submission.22 Third, under the Budget Control Act 

of 2011 (BCA), sequestration of discretionary appropriations could occur 

in any fiscal year through 2021.23 In addition, as shown in figure 4, for the 

past several fiscal years IRS has been appropriated less than it 

requested, with a difference of 13 percent in fiscal year 2014. Looking 

back over a 10-year horizon provides further evidence that funding levels 

provided in fiscal years 2010 and 2011 were an exception and that the 

recent decline might be viewed more as a return to normal. All of these 

 

19IRS’s Senior Executive Team is comprised of its highest level members of the senior 

executive service, including the Commissioners, Deputy Commissioners, Chief Financial 

Officer, Office Directors, Chief Human Capital Officer, and Chief Counsel. 

20IRS’s budget was largely on an upward trajectory from fiscal year 2002 through fiscal 

year 2010.

21GAO, Fiscal Outlook: Federal Fiscal Outlook (Spring 2014), (Washington, D.C.: 2014), 

accessed on June 3, 2014, 

http://www.gao.gov/fiscal_outlook/federal_fiscal_outlook/overview. 

22Specifically, OMB stated, “Unless your agency has been given explicit direction 

otherwise by OMB, your FY 2016 budget submission to OMB should reflect a 2 percent 

reduction below the net discretionary total provided for your agency for FY 2016 in the FY 

2015 Budget, for each of the defense and nondefense discretionary categories.” Office of 

Management and Budget, Fiscal Year 2016 Budget Guidance, Memorandum M-14-07 

(Washington, D.C.: May 5, 2014).

23The BCA imposed discretionary spending limits for fiscal years 2012 to 2021 to reduce 

projected spending by about $1 trillion. If the discretionary spending caps are not met in a 

given fiscal year, they will be enforced by an “after session sequestration” within 15 days 

after the end of a congressional session. Pub. L. No. 112-25, 125 Stat. 240 (Aug. 2, 

2011). 
 

Page 17 GAO-14-605 IRS 2015 Budget

factors indicate that it is increasingly important for agencies to have longterm plans to address uncertain budget environments.

Figure 4: IRS Appropriations, Fiscal Years 2009 through 2014, and Requested 

Appropriations, Fiscal Years 2009 through 2015

Notes: Amounts shown do not include other budgetary resources, such as user fees.

a

Fiscal year 2013 levels represent an across-the-board rescission and reductions required by 

sequestration. 

In addition, according to Executive Order No. 13576 and OMB guidance, 

agencies are to develop strategies for operating effectively and efficiently 

in an uncertain budget environment.24 We have previously reported on 

steps that agencies can take to do this.25 These include reexamining 

 

24Executive Order No. 13576. Delivering an Efficient, Effective, and Accountable 

Government, 76 Fed. Reg. 35297 (June 16, 2011). In addition, a June 28, 2011 OMB 

memorandum outlined specific steps that CFOs should take to address the 

administration’s directive to identify, execute, and report on administrative cost savings, 

including steps to identify and share best government practices that cut costs and improve 

efficiency. Office of Management and Budget, Campaign to Cut Waste (Washington, D.C.: 

June 28, 2011). See also Office of Management and Budget, Planning for Uncertainty with 

Respect to Fiscal Year 2013 Budgetary Resources, Memorandum M-13-03 (Washington, 

D.C.: Jan. 14, 2013) for guidance on preparing plans to operate within a reduced 

budgetary environment if sequestration occurs.

25GAO, Streamlining Government: Key Practices from Select Efficiency Initiatives Should 

Be Shared Governmentwide, GAO-11-908 (Washington, D.C.: Sept. 30, 2011). 
 

Page 18 GAO-14-605 IRS 2015 Budget

programs, related processes, and organizational structures to determine 

whether they are effectively or efficiently achieving their mission. They 

also include streamlining or consolidating management or operational 

processes and functions to make them more cost effective.26 We have 

also made recommendations to IRS on how it can more strategically 

manage operations in specific areas, such as developing a long-term 

strategy to improve its online services.27

A long-term strategy that includes a fundamental reexamination of IRS’s 

operations, programs, and organizational structure could help it operate 

more effectively and efficiently in an environment of budget uncertainty. 

Although IRS has taken steps in the short term, they may not be sufficient 

to stem performance declines. While IRS was able to mitigate some of 

the effects of sequestration, it is unlikely that the steps taken are 

sustainable strategies in the long term. Moreover, the extent of turnover in 

senior leadership makes it even more important to have a long-term 

guiding strategy.

 

26Key practices included (1) using change management practices to implement and 

sustain efficiency initiatives, (2) targeting both short-term and long-term efficiency 

initiatives, and (3) building capacity for improving efficiency. See GAO-11-908. 

27GAO, IRS Website: Long-Term Strategy Needed to Improve Interactive Services,

GAO-13-435 (Washington, D.C.: Apr. 16, 2013); GAO-13-156; Tax Gap: IRS Could 

Significantly Increase Revenues by Better Targeting Enforcement Resources, 

GAO-13-151 (Washington, D.C.: Dec. 5, 2012). 

IRS Does Not Use 

Return on Investment 

Data to Evaluate the 

Performance of 

Revenue Initiatives or 

to Inform 

Enforcement 

Resource Allocation 

Decisions
 

Page 19 GAO-14-605 IRS 2015 Budget

IRS calculates a projected return on investment (ROI)—the projected 

revenue divided by the projected cost—for most proposed new 

enforcement initiatives cited in the congressional justification.28 In the 

calculation, revenue represents the expected direct revenue effects of the 

initiatives, but does not reflect any indirect revenue effects that may result 

if the added enforcement activities increase voluntary compliance among 

taxpayers. Cost includes all enforcement-related resources used by IRS, 

but does not incorporate compliance costs imposed on taxpayers.

For fiscal year 2015, IRS proposed 13 enforcement initiatives (see table 

2). IRS estimated a projected ROI for 8 of the initiatives. In addition, 11 

initiatives are predicated on funding from a program integrity cap 

adjustment. IRS calculates ROI over a 3-year period (based on 

projections of associated costs and expected revenue) because it expects 

that staff working on the initiative will reach their full performance after 3 

years.

Table 2: Fiscal Year 2015 New Enforcement Initiatives 

Enforcement initiative

Type of ROI 

initiative

Full performance 

ROI (fiscal year 

2017) (dollars) a

Program 

integrity cap 

adjustment

Prevent Identity Theft and 

Refund Fraud

Revenue 

protecting

$22.4

Expand Audit Coverage Revenue 

protecting

20.5 

Revenue 

producing

7.1 

Address Impact of Patient 

Protection and Affordable Care 

Act (PPACA) Statutory 

Requirements 

Revenue 

protecting 

14.0

Revenue 

producing

2.3

Expand Coverage of High 

Wealth Individuals and 

Enterprises 

Revenue 

producing

11.3 

Enhance Collection Coverage Revenue 

producing 

8.5 

 

28IRS currently does not calculate ROI for taxpayer service initiatives.

IRS Calculates a 

Projected, but Not Actual, 

ROI for Most New 

Enforcement Initiatives
 

Page 20 GAO-14-605 IRS 2015 Budget

Enforcement initiative

Type of ROI 

initiative

Full performance 

ROI (fiscal year 

2017) (dollars) a

Program 

integrity cap 

adjustment

Improve Coverage of 

Partnerships and Flow-Through 

Entities

Revenue 

producing 

6.8 

Address International and 

Offshore Compliance Issues

Revenue 

producing 

4.8 

Leverage Data to Improve Case 

Selection

Revenue 

enhancing 

2.0 

Build Out Tax Return Preparer 

Compliance and Professional 

Responsibility Activities

Strategic 

revenue 

producing 

— 

Expand Compliance Coverage in 

the Tax-Exempt Sector

Strategic 

revenue 

producing 

— 

Implement IT Changes to Deliver 

the Foreign Account Tax 

Compliance Act (FATCA) 

Strategic 

revenue 

producing 

— 

Leverage Digital Evidence for 

Criminal Investigations (CI)

Strategic 

revenue 

producing 

— 

Pursue Fraud Referrals, 

Employment Tax, and Abusive 

Tax Schemes 

Strategic 

revenue 

producing 

— 

Source: GAO analysis of fiscal year 2015 congressional justification for IRS.

a

Revenue protecting means the initiative prevents the issuance of fraudulent returns to persons 

posing as a taxpayer and resolves issues prior to issuing a taxpayer’s refund. Revenue producing 

means the initiative yields direct, measureable results through ROI enforcement activities. Revenue 

enhancing means the initiative improves technology by providing better case selection, issue 

identification, and enforcement case treatment. Strategic revenue producing means the initiative does 

not have immediately measurable ROI, but clear long-term revenue effects.

As of May 2014, IRS has not determined the extent to which the 

resources actually devoted to enforcement initiatives differ from the 3-

year projections of resources described in prior budget justifications. Nor 

has IRS computed actual rates of return on the resources that were 

actually used for specific initiatives. As a result, neither IRS nor others 

know whether the program initiatives it proposed, once implemented, 

were as productive as expected. We have reported that calculating actual 

ROI would be a significant step forward in determining how initiatives are 

performing and whether calculations for projected ROIs need to be 

IRS Does Not Calculate 

an Actual ROI Once 

Initiatives Are 

Implemented
 

Page 21 GAO-14-605 IRS 2015 Budget

adjusted.29 IRS, following a recommendation from the Treasury Inspector 

General for Tax Administration, is conducting a feasibility study to identify 

the necessary steps and challenges that exist to measure actual revenue 

for enforcement initiatives.30 IRS expects to complete the study in 

December 2014.

IRS officials noted that one reason they do not calculate actual ROI for 

enforcement initiatives is because it is difficult to determine which staff 

have actually worked on a particular initiative over a multi-year period. 

According to IRS officials, IRS creates exam plans each year based on 

division goals and priority areas, which can change on an annual basis.

As such, staff may be initially hired to work on a specific initiative, but may 

work on another initiative the following year. According to IRS officials, 

different individuals may work on an initiative during the course of a year, 

rather than specific individuals being dedicated to the initiative 100 

percent of the time. When staff initially hired to work on an initiative are 

transferred to another initiative, there can be significant differences 

between the scope of the proposed and implemented versions of the 

initiative. In our prior work, we noted that if IRS falls behind on its hiring 

plans, staff may not reach their full potential as quickly as anticipated, 

which ultimately could delay projected revenue gains.31

In addition, officials from the IRS Corporate Budget Office cited difficulties 

in tracking ROI-related information on funded initiatives, because of 

difficulties in matching information between IRS systems for formulating 

and executing its budget. IRS has established funded program codes 

(previously known as internal order codes) as a mechanism to track 

specific initiatives—such as IRDM and merchant card/cost basis 

reporting—which could provide actual ROI, but IRS mainly uses these 

codes to track information that is of interest to congressional staff.

 

29GAO, Internal Revenue Service: Review of the Fiscal Year 2010 Budget Request, 

GAO-09-754 (Washington, D.C.: June 3, 2009).

30Treasury Inspector General for Tax Administration, The Use of Return on Investment 

Information in Managing Tax Enforcement Resources Could be Improved, 2013-10-104 

(Washington, D.C.: Sept. 23, 2013). In a February 2014 meeting with IRS, we discussed 

different approaches to calculating actual ROI. IRS officials told us they planned to take 

into consideration many factors and potential limitations to complete actual ROI 

calculations.

31GAO-09-754. 
 

Page 22 GAO-14-605 IRS 2015 Budget

Comparing projected ROI to actual ROI is consistent with project 

management concepts, internal control standards, OMB guidance, and 

our prior work on performance management.32 In addition, budget 

decision makers in Congress have stated that a comparison of projected 

ROI to actual ROI initiatives would be useful information to have. Until 

IRS calculates actual ROI for its implemented enforcement initiatives, it is 

not accountable for the ROI it projected when requesting funding.

In June 2009, we recommended that IRS calculate actual ROI because it 

provides information about how programs and initiatives are performing 

and the possible need to adjust ROI methodologies to more effectively 

project results of future proposed initiatives.33 We have recognized that 

calculating actual ROI is challenging and existing data may not be 

complete.

Based on our prior recommendation, IRS began reporting actual ROI in 

the fiscal year 2014 congressional justification for the following three 

major enforcement programs:

• Examination. This program conducts examinations of tax returns of 

individual taxpayers, businesses, and other types of organizations to 

verify that the tax reported is correct.

• Collection. This program collects delinquent taxes and secures 

delinquent tax returns through the appropriate use of enforcement 

tools such as liens, levies, seizures of assets, installment agreements, 

offers in compromise, substitute for returns, and 26 U.S.C. § 6020(b), 

which allows the IRS to prepare returns if a taxpayer fails to file a 

return.

 

32Office of Management and Budget, Preparation and Submission of Strategic Plans, 

Annual Performance Plans, and Annual Program Performance Results, OMB Circular A11 (Washington, D.C.: June 2008); Office of Management and Budget, Guidelines and 

Discount Rates for Benefit-Cost Analysis of Federal Programs, OMB Circular A-94 

(Washington, D.C.: undated); GAO, Tax Administration: IRS Needs to Further Refine Its 

Tax Filing Season Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 

2002).

33GAO-09-754. 

IRS Calculates Actual ROI 

for Its Broad Enforcement 

Programs, but Does Not 

Use It to Inform Resource 

Decisions
 

Page 23 GAO-14-605 IRS 2015 Budget

• Automated Underreporter. This program matches taxpayer 

information returns against data reported on individual tax returns and 

verifies the information to identify any discrepancies.

Table 3: Actual Return on Investment (ROI) for Major IRS Enforcement Programs (Dollars in Millions) 

Fiscal year 2010 Fiscal year 2011 Fiscal year 2012 Fiscal year 2013

Enforcement 

program Cost Revenue ROI Cost Revenue ROI Cost Revenue ROI Cost Revenue ROI

Examination $4,371 a $23,563 5.4 $4,333 $18,924 4.4 $4,232 $14,476 3.4 $3,965 $16,662 4.2

Collection 1,948 29,105 14.9 1,939 31,060 16.0 1,742 30,442 17.5 1,660 31,396 18.9

Automated

Underreporter 

262 4,924 18.8 270 5,245 19.4 267 5,269 19.7 258 5,287 20.5

Total $6,581 $57,592 8.8 $6,543 $55,229 8.4 $6,242 $50,187 8.0 $5,883 $53,345 9.1

Source: Fiscal year 2015 congressional justification for IRS.

Notes: Numbers may not add due to rounding.

a

Revenues collected in a given year are not necessarily associated with costs realized in a given year 

because cases may cross years. Current revenue streams may be the result of past enforcement 

activity, such as installment agreements.

According to IRS officials, IRS calculates the actual ROI for these 

programs because total enforcement revenue collected is allocated to 

these three categories. IRS reports the actual ROI in the congressional 

justification, based on our previous recommendation and congressional 

budget decision makers’ interest in this information. However, IRS does

not use this actual ROI information for resource allocation decisions 

because the data do not reflect marginal ROI, nor do they include the 

indirect effects of IRS enforcement activities on voluntary compliance.34

Moreover, because of the time required to work enforcement cases to 

completion, the costs associated with assessing and collecting additional 

revenues may be spread over more than one fiscal year and are not 

necessarily aligned with revenue collections that may occur in 

subsequent years. These limitations are critical concerns, which is why 

we recommended in 2012 that IRS develop estimates of marginal direct 

 

34A marginal ROI can be defined as the ratio of revenue generated from marginal 

enforcement cases, divided by the resources spent on working those cases. Marginal 

enforcement cases are those that would not have been worked if the resources allocated 

to a particular enforcement activity had been slightly less, as well as those additional 

cases that would have been worked if the resources for the activity had been slightly 

greater. 
 

Page 24 GAO-14-605 IRS 2015 Budget

revenue and marginal direct costs within each enforcement program. We 

further recommended that IRS explore the potential of estimating the 

marginal influence of enforcement activity on voluntary compliance.35

However, given that these data gaps could take considerable time to fill, 

we also demonstrated how IRS planners could in the meantime review 

actual (average) ROI across different enforcement programs and across 

different groups of cases within these programs to better inform resource 

allocation decisions. As we noted, the planners could consider this 

information in combination with their professional judgment relating to 

other relevant but currently unquantifiable factors. In fact, while limited in 

scope, we demonstrated how a hypothetical shift in resources could 

potentially increase direct revenue by $1 billion annually, without 

significant negative effects on voluntary compliance.

The development of data relating to marginal ROI would also enable IRS 

to improve its projections of ROI for enforcement initiatives, particularly 

those that expand coverage for specific taxpayer categories. IRS 

currently knows little about the extent to which marginal yields differ from 

average yields within specific return categories; consequently, it does not 

know the extent to which its ROI projections, which are based on average 

yields, may be overstated.36 By collecting the data needed to compute 

actual ROI for expanded coverage enforcement initiatives, IRS would be 

able to determine whether marginal returns are significantly lower than 

average returns; thereby, IRS would have better information for deciding 

whether the expanded coverage should be maintained, cut back, or 

expanded further in future years. Actual productivity information and 

better ROI projections can also help budget decision makers in 

determining funding levels for IRS.

 

35GAO-13-151. In addition to indirect revenue effects through improved voluntary 

compliance, we also identified taxpayer compliance costs and effects on equity and 

economic efficiency as factors that are relevant but difficult to estimate. Taxpayers’ 

perceived risks of being audited are recognized as a factor that influences voluntary 

compliance. The higher the risk of being audited, the less likely taxpayers are to evade 

taxes.

36If IRS’s return selection process results in returns with the greatest revenue potential 

being worked first and those with the least potential being worked last, then each 

additional return that IRS examines with the expanded coverage would have a lower 

revenue yield than the average for all of the returns that had been examined up to that 

point. In other words, the marginal yield would be lower than the average yield.
 

Page 25 GAO-14-605 IRS 2015 Budget

When enacted, PPACA gave IRS responsibility for implementing a 

number of provisions. From fiscal year 2010 through 2012 and again in 

2014, IRS received funds for PPACA implementation activities from the 

Department of Health and Human Services Health Insurance Reform 

Implementation Fund (HIRIF), which is used to fund the federal 

administrative expenses to implement PPACA. To implement PPACA 

provisions in fiscal years 2013 and 2014, IRS requested $360.5 million 

and $439.6 million, respectively, but it did not receive this funding. As we 

previously reported, of the $12.5 billion IRS requested for fiscal year 

2015, $451.7 million is to implement PPACA.37 Table 4 shows the 

amounts IRS obligated for PPACA implementation from fiscal years 2010 

to 2014.

Table 4: Patient Protection and Affordable Care Act Spending, Fiscal Years 2010 to 2014 (in Millions)

Fiscal years 

Appropriation account 2010 2011 2012 2013

2014 

(as of March 31) Total

Health Insurance Reform Implementation 

Fund

$20.7 $168.2 $299.2 - $1.1 $489.2

Taxpayer Services - - - 4.3 2.2 6.5

Enforcement - - - 19.3 7.7 27.0

Operations Support - - - 190.7 20.1 210.8

Operations Support User Fees - - - 69.7 56.0 125.7

Total $20.7 $168.2 $299.2 $284.0 $87.1 $859.2

Source: GAO analysis of IRS documents.

Note: Numbers may not add due to rounding.

For fiscal year 2014, IRS identified seven initiatives related to PPACA 

implementation. Table 5 shows how much IRS plans to spend on these 

initiatives in fiscal year 2014 and the amount spent through the middle of 

fiscal year 2014. Of the total planned spending for fiscal year 2014—

$400.6 million—IRS has obligated $87.1 million through March 31, 2014.

 

37GAO-14-534R. 

Since Inception, IRS 

Has Spent $859 

Million to Implement 

PPACA, but an 

Updated IT Cost 

Estimate Is 

Unavailable for 

Review
 

Page 26 GAO-14-605 IRS 2015 Budget

Table 5: IRS Fiscal Year 2014 Planned and Actual Spending on Patient Protection 

and Affordable Care Act by Initiative (in Millions)

Initiative

Fiscal year 

2014 planned 

spending

Fiscal year 2014 

obligations as of 

March 31, 2014

Administer New Fees on Drug Manufacturers 

and Health Insurers

$2.3 $1.0

Promoting Compliance with Other New 

Provisions 

8.5 3.1

Strengthen Oversight of Exempt Hospitals 3.0 1.6

Assist Taxpayers Understanding ACA Issues 23.7 2.2

Support of Implementation & Taxpayer Issues 

(Counsel, Appeals & TAS)

5.2 2.2

Applications Development/Systems 

Software/Contracts/Systems Testing & Delivery

344.5 71.4

Program Management, Business Design and 

Specifications and Oversight of Data Sharing of 

Federal Tax Information

13.4 5.5

Total $400.6 $87.1

Source: GAO analysis of IRS documents.

Note: Numbers may not add due to rounding.

Table 6 shows how much IRS requested to implement PPACA initiatives 

in fiscal year 2015.

Table 6: Fiscal Year 2015 Budget Request for IRS to Implement the Patient 

Protection and Affordable Care Act (in Millions)

Initiative Fiscal year 2015

Expand Telecom Infrastructure to Handle Increased Demand $16.0

Improve Taxpayer Service and Return Processing 73.9

Address Impact of Affordable Care Act (ACA) Statutory Requirements 56.1

Implement Information Technology (IT) Changes to Deliver Tax 

Credits and Other Requirements

305.6

Total $451.7

Source: GAO analysis of IRS documents.

Note: Numbers may not add due to rounding.

As of December 2012, IRS estimated the full life-cycle costs for PPACA 

to be $1.89 billion from fiscal years 2010 through 2026. According to IRS 

officials, an update to the December 2012 PPACA cost estimate was 

completed in September 2013. The updated cost estimate is still under 

review and it will not be released until January 2015. As a result, we 
 

Page 27 GAO-14-605 IRS 2015 Budget

cannot assess the progress made on implementing our prior 

recommendations.

In September 2013, we reported that IRS made progress in updating its 

initial October 2010 PPACA cost estimate, in accordance with best 

practices as identified in the GAO Cost Estimating and Assessment 

Guide.38 However, we found that IRS could take further steps to improve 

the estimate’s accuracy and credibility. At that time, IRS agreed with the 

majority of the actions we recommended. IRS officials reported that the 

September 2013 PPACA cost estimate does address some of the 

recommended actions. For example, IRS officials said they implemented 

our recommendation to document how cost drivers are selected for future 

sensitivity analyses. However, until the September 2013 cost estimate is 

available for our review, we cannot verify these changes.

Since September 2013, IRS at least partially implemented three 

recommendations made in our prior reviews of its budget justification 

documents. Two of the implemented recommendations resulted in more 

transparent reporting and greater accessibility to IT investments data. 

Table 7 summarizes the recommendations implemented by IRS.

Table 7: Prior GAO Recommendations Implemented by IRS

Report Recommendation Action taken Benefit

GAO-12-603 Modify funding request for new hires

Prepare funding requests for new staff 

based on estimated hiring dates.

Partially implemented: IRS changed 

how it requests funding for some new 

hires in the President’s fiscal year 

2015 budget request; however, it still 

assumed a January 1 hire date for 

most new staff.

Aligning funding requests more 

closely with estimated costs, hiring 

plans or both would represent 

workforce needs more accurately 

and transparently.

GAO-13-835 Enhance transparency of PPACA 

investment data

Publicly report ACA IT investment as a 

major investment on the OMB IT 

Dashboard and the fiscal year 2015 

budget request, including standard cost, 

schedule, and performance information.

Fully implemented: IRS reported the 

ACA IT investment as a major 

investment in the fiscal year 2015 

budget request and included an 

Exhibit 300 (a capital asset plan), 

which is publicly available on the OMB 

Dashboard. 

Publicly reporting on IRS’s ACA IT 

investment eases the monitoring of 

implementation and enhances 

transparency.

 

38GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

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

IRS Implemented

Three of Seven Prior 

Recommendations
 

Page 28 GAO-14-605 IRS 2015 Budget

Report Recommendation Action taken Benefit

GAO-13-835 Expand and consolidate information on 

major IT investments into justification 

materials

Report key data on major IT 

investments in one consolidated 

document, such as the congressional 

justification, in consultation with 

congressional stakeholders.

Fully implemented: IRS included new, 

useful information on its major IT 

investments in its fiscal year 2015 

budget request.

Consolidating key budget and 

performance information on major 

IT investments in one budget 

document (such as the 

congressional justification) ensures 

decision makers have 

comprehensive, easy to understand 

information on major IT 

investments.

Source: GAO analysis of prior GAO reports on IRS budget requests.

Four budget-related recommendations to IRS remain open. As shown in 

table 8, IRS is planning to implement two of the open recommendations, 

but only partially agrees with the two remaining open recommendations. 

Appendix II identifies all of our products with open matters for Congress 

and recommendations to IRS regarding tax administration that could 

result in potential savings or increased revenues.

Table 8: Budget-Related Recommendations to IRS that Remain Open

Report Open recommendations Benefit Status 

GAO-12-603 Conduct cost-effectiveness analyses

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.

Without cost-effectiveness 

analyses, budget decision 

makers do not have 

information to compare 

alternatives and it may be 

difficult to determine the best 

use of resources.

IRS stated it is taking steps to 

implement this recommendation.

GAO-12-603 Develop a quantitative measure of scope

At a minimum, develop a quantitative measure of 

scope for its major IT investments, in order to have 

complete information on the performance of these 

investments.

A quantitative measure of 

scope is a good practice as it 

provides an objective 

measure of whether an 

investment delivered the 

functionality that was paid for.

In March 2014, IRS reported that 

it has practices and processes in 

place that address this 

recommendation, including 

quarterly reports to Congress 

and a baseline change request 

process. However, we do not 

believe these practices address 

our recommendation, as neither 

approach includes a quantitative 

measure. For this reason we 

believe the recommendation is 

still warranted.a

GAO-13-835 Improve budget formulation guidance

Improve guidance given to business units for the 

pre-selection budget formulation process, 

emphasizing the importance of information on the 

estimated impact—qualitative or quantitative—of 

proposed budget initiatives.

Expanding internal guidance 

for pre-selection budget 

formulation templates 

facilitates more complete 

information for internal budget 

decision-making.

IRS is taking steps to implement 

this recommendation during 

fiscal year 2016 budget 

formulation.
 

Page 29 GAO-14-605 IRS 2015 Budget

Report Open recommendations Benefit Status 

GAO-13-835 Further refine updates to the PPACA cost estimate

Improve the accuracy and credibility of future 

updates to the PPACA cost estimate by taking the 

following actions to more closely follow best 

practices outlined in the GAO Cost Guide:

• Use earned value management to capture 

actual costs and use them as a basis for future 

updates.

• Explain why variances occurred between the 

current estimate and previous estimates.

• Document how cost drivers are selected for 

future sensitivity analyses.

• Conduct future risk and uncertainty analyses 

consistent with best practices, and develop 

and document plans to address risks.

• Validate the original cost estimate by 

preparing a second, independent cost 

estimate.

Developing a cost estimate 

that meets additional best 

practices, will foster 

accountability, improve 

insight, and provide objective 

information.

IRS agreed with all of the actions 

recommended, except using 

earned value management and 

with validating the PPACA cost 

estimate by preparing a second, 

independent cost estimate, in 

part because of cost and burden.

IRS officials reported that the 

other actions were implemented 

into version 2 of the PPACA cost 

estimate. The updated cost 

estimate was completed in 

September 2013, and we plan to 

review it once it is released in 

January 2015. 

Source: GAO analysis of prior GAO reports on IRS budget requests.

Note: aGAO, Information Technology: IRS Needs to Improve the Reliability and Transparency of 

Reported Investment Information, GAO-14-298 (Washington, D.C.: Apr. 2, 2014).
 

Page 30 GAO-14-605 IRS 2015 Budget

IRS is operating in an uncertain budget environment, and there are 

implications that significant funding increases are unlikely in the 

foreseeable future. While IRS has taken steps in recent years to reduce 

spending, those steps were generally reactionary. Now is the time to 

fundamentally reexamine its operations, programs, and organizational 

structure to determine how to most efficiently and effectively accomplish 

its mission. Creating such a roadmap will help ensure that IRS effectively 

provides taxpayers with services to make voluntary compliance easier 

and to enforce the tax laws, so that taxpayers fulfill their tax 

responsibilities. A roadmap will also help provide continuity in light of any 

future turnover among senior executives.

As IRS examines its operations, it will need multiple sources of data on 

which to base its assessment and to ultimately make resource allocation 

decisions. While not necessarily the only factor in making resource 

allocation decisions, actual ROI could provide insight on the productivity 

of a program and inform estimating techniques for new initiatives. In turn, 

better estimates of ROI and actual productivity information can help 

budget decision makers in determining funding levels for IRS. Comparing 

projected and actual ROIs can help hold managers and the IRS 

accountable for the funding received.

We recommend the Commissioner of Internal Revenue take the following 

three actions:

As a result of turnover in IRS’s Senior Executive Team and in order to 

enhance budget planning and improve decision making and 

accountability, we recommend IRS

• develop a long-term strategy to address operations amidst an 

uncertain budget environment. As part of the strategy, IRS should 

take steps to improve its efficiency, including (1) reexamining 

programs, related processes, and organizational structures to 

determine whether they are effectively and efficiently achieving the 

IRS mission, and (2) streamlining or consolidating management or 

operational processes and functions to make them more costeffective.

Because ROI provides insights on the productivity of a program and is 

one important factor in making resource allocation decisions, we 

recommend IRS

Conclusion

Recommendations for 

Executive Action
 

Page 31 GAO-14-605 IRS 2015 Budget

• calculate actual ROI for implemented initiatives, compare the actual 

ROI to projected ROI, and provide the comparison to budget decision 

makers for initiatives where IRS allocated resources; and

• use actual ROI calculations as part of resource allocation decisions.

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

Revenue for comment. In written comments, reproduced in appendix III, 

IRS agreed with our recommendations. Regarding our recommendation 

to develop a long-term strategy to address operations amidst an uncertain 

budget environment, IRS noted that it is conducting a review of its budget 

base to ensure resources are aligned with IRS Strategic Goals, 

Objectives, and Priorities, and will adjust its fiscal year 2015 budget as a 

result of this review. Regarding our ROI recommendations, IRS agreed 

that ROI is one of several factors relevant to making resource allocation 

decisions. However, IRS noted that determining the impact of an initiative 

will always rely on estimates, as the results of an initiative are the 

difference between actual results and what would have occurred in the 

absence of the initiative, which cannot be measured. We agree that 

projected benefits are based on estimates, but it is possible to develop an 

estimate for what would have occurred in the absence of the initiative. 

Moreover, this report emphasizes comparisons between projected and 

actual ROI, not comparing actual results with what would have occurred 

in the absence of an initiative. Comparing projected and actual ROI is 

important to assist budget decision makers in determining funding levels 

for IRS and to hold managers and the IRS accountable for the funding 

received. IRS also provided technical comments on our draft report, 

which we incorporated as appropriate.

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, and the Chairman of the IRS Oversight Board. 

The report is available at no charge on the GAO website at 

http://www.gao.gov. 

Agency Comments 

and Our Evaluation
 

Page 32 GAO-14-605 IRS 2015 Budget

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

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

Congressional Relations and Public Affairs are on the last page of this 

report. GAO staff members who made major contributions to this report 

are listed in appendix IV.

James R. McTigue, Jr.

Director, Tax Issues

Strategic Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-14-605 IRS 2015 Budget

We were asked to review the President’s fiscal year 2015 budget request 

for the Internal Revenue Service (IRS). The objectives of this report were 

to (1) assess IRS’s strategy to address the budget cuts, including 

sequestration; (2) assess any new use of return on investment (ROI) 

analysis; (3) summarize requested funding and actual and planned 

spending for the Patient Protection and Affordable Care Act (PPACA)1

and assess the updated PPACA information technology cost estimate; 

and (4) describe IRS’s progress in implementing open GAO budgetrelated recommendations and list any GAO open matters for Congress 

and recommendations for executive action that could result in potential 

savings or increased revenue for IRS.

To assess IRS’s strategy to address the budget cuts, including 

sequestration, we summarized IRS’s budget, staffing, performance, and 

workload trends for fiscal years 2009 through 2015. We selected fiscal 

year 2009 as a starting point because fiscal year 2009 was the year prior 

to IRS’s highest appropriation in recent years. To summarize these 

trends, we analyzed congressional justifications for IRS for fiscal years 

2009 through 2015 and performance data for key IRS operations. When 

we describe full-time equivalent (FTE) trends, the actual number of FTEs 

represents total number of hours worked (or to be worked) divided by the 

number of compensable hours applicable to each fiscal year, according to 

definition provided by IRS. Enacted FTEs represents the number of FTEs 

provided for the enacted budget. Requested FTEs represents the number 

of FTEs requested in the President’s Budget for IRS.

We also analyzed FTE and workload trends on IRS identified priority 

programs, which include new statutory mandates. We reviewed reports 

by the IRS Oversight Board, Treasury Inspector General for Taxpayer 

Administration (TIGTA), and the National Taxpayer Advocate (NTA), 

which provided some possible reasons for performance declines. In 

addition, we analyzed proposed program initiatives in the fiscal year 2015 

congressional justification and determined which ones were predicated on 

a program integrity cap adjustment, which Congress passes to allow 

additional funding above discretionary spending limits. We also analyzed 

steps IRS has taken to address budget cuts, including sequestration. To 

 

1

Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and 

Education Reconciliation Act of 2010 (HCERA), Pub. L. No. 111-152, 124 Stat. 1029, 

which we refer to collectively as PPACA. IRS refers to PPACA by the acronym for the 

Affordable Care Act, ACA.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-14-605 IRS 2015 Budget

analyze these steps, we reviewed the fiscal year 2015 congressional 

justification, including information on savings initiatives realized or 

proposed from fiscal years 2009 through 2015 and prior GAO work on 

sequestration. We also interviewed IRS officials in IRS offices of 

Corporate Budget and Information Technology and the NTA. We 

compared IRS efforts to address uncertain budgets to Executive Order 

13576 “Delivering an Efficient, Effective, and Accountable Government” 

and Office of Management and Budget (OMB) guidance. In addition, we 

compared IRS efforts to leading practices in government performance

and efficiency.

To assess any new use of ROI analysis, we reviewed the fiscal year 2015 

congressional justification to identify IRS’s projected and actual ROI; 

obtained data from IRS to determine the new initiatives by projected 

revenue, cost, and type; and summarized projected ROI by type for new 

enforcement initiatives and actual ROI for IRS’s three enforcement 

programs—Examination, Collection, and Automated Underreporter. As 

part of our analysis of proposed program initiatives, we also identified any 

new enforcement initiative predicated on a program integrity cap 

adjustment. We reviewed OMB and IRS guidance on new program 

initiatives and interviewed IRS Corporate Budget officials to determine 

how IRS calculates ROI for proposed initiatives and the extent to which it 

compares estimated ROI to actual ROI for funded new initiatives. We 

reviewed prior GAO and TIGTA reports to identify criteria for measuring 

actual revenue of new program initiatives and for use in resource 

allocation decisions. We also interviewed IRS Research, Analysis, and 

Statistics officials to discuss the IRS feasibility study on ROI calculations 

and challenges in calculating actual ROI for new enforcement initiatives, 

as well as current enforcement programs.

To provide funding and spending information on PPACA, we summarized 

data by appropriation account since program inception (fiscal year 2010) 

and analyzed new information on actual and planned spending for fiscal 

year 2014, based on congressional budget justifications for IRS and on 

spending plans. We could not assess the most recent update of the 

PPACA cost estimate—September 2013—because it is still under 

review.2 However, to determine IRS’s progress in updating its cost 

 

2

We will report on the September 2013 PPACA cost estimate once it is released for our 

review. 
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-14-605 IRS 2015 Budget

estimate (consistent with our recommendation in 2013 to follow best 

practices identified in the GAO Cost Estimating and Assessment Guide) 

we interviewed and obtained some documentation from IRS officials.

To describe IRS’s progress in implementing our prior budget-related 

recommendations, we obtained information from various IRS officials and 

reviewed relevant documentation, including the fiscal year 2015 

congressional budget justification and the IRS Joint Audit Management 

Enterprise System reports, which track IRS actions taken to implement 

GAO recommendations. We then determined which recommendations 

were implemented. We also searched the GAO Engagement Reporting 

System to identify prior GAO open matters for Congress and 

recommendations for executive action. We then identified whether the 

recommendation or matter could result in a potential savings, increased 

revenue, or indirect financial benefits for IRS.

We interviewed IRS officials and determined that the data presented in 

this report were sufficiently reliable for our purposes. We conducted our 

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

budget are located.

We conducted this performance audit from November 2013 to June 2014 

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.
Appendix II: GAO Products with Open Matters 

for Congress and Recommendations to the 

Internal Revenue Service (IRS)

Page 36 GAO-14-605 IRS 2015 Budget

In the 37 GAO products listed below, as of March 13, 2014, there are 10 

open matters for Congress and 72 open recommendations to IRS. Of 

these matters and recommendations, 20 increase revenue, 15 increase 

savings, 10 increase both savings and revenue, and 37 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 Potential financial impact

Enhancing budget requests and implementing Patient Protection and Affordable Care Act (PPACA)

IRS 2014 Budget: Improvements Made to Budget Request and Cost Estimate, but 

Further Actions Needed (GAO-13-835) 

Increase Savings, Indirect Financial Benefit

IRS 2013 Budget: Continuing to Improve Information on Program Costs and Results 

Could Aid in Resource Decision Making (GAO-12-603) 

Increase Savings, Indirect Financial Benefit

Enhancing electronic filing

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

Increase Benefits (GAO-12-33) 

Increase Savings, Increase Savings and 

Revenue, Indirect Financial Benefit

Electronic Tax Return Filing: Improvements Can Be Made before Mandate Becomes 

Fully Implemented (GAO-11-344) 

Increase Savings

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) 

Indirect Financial Benefit

Enhancing internal controls

Management Report: Improvements Are Needed to Enhance the Internal Revenue 

Service’s Internal Controls (GAO-13-420R) 

Increase Savings, Indirect Financial Benefit

Enhancing online taxpayer services

IRS Website: Long-Term Strategy Needed to Improve Interactive Services

(GAO-13-435) 

Increase Savings, Indirect Financial Benefit

Enhancing private pension disclosures

Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved

(GAO-14-92) 

Indirect Financial Benefit

Enhancing taxpayer services

2012 Tax Filing: IRS Faces Challenges Providing Service to Taxpayers and Could 

Collect Balances Due More Effectively (GAO-13-156) 

Increase Savings and Revenue

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

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

Increase Savings and Revenue

Enhancing treatment of appraisals issues

Appraised Values on Tax Returns: Burdens on Taxpayers Could Be Reduced and 

Selected Practices Improved (GAO-12-608) 

Increase Savings and Revenue

Enhancing verification of tax returns

Tax Refunds: IRS Is Exploring Verification Improvements, but Needs to Better Manage 

Risks (GAO-13-515) 

Indirect Financial Benefit

Appendix II: GAO Products with Open 

Matters for Congress and Recommendations 

to the Internal Revenue Service (IRS) 
Appendix II: GAO Products with Open Matters 

for Congress and Recommendations to the 

Internal Revenue Service (IRS)

Page 37 GAO-14-605 IRS 2015 Budget

Report title and number Potential financial impact

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 year Compliance (GAO-11-481) 

Increase Revenue

Recovery Act: IRS Quickly Implemented Tax Provisions, but Reporting and 

Enforcement Improvements Are Needed (GAO-10-349) 

Increase Savings and Revenue

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) 

Increase Revenue, Increase Savings and 

Revenue

Tax Administration: IRS’s 2008 Filing Season Generally Successful Despite Challenges, 

although IRS Could Expand Enforcement during Returns Processing (GAO-09-146) 

Increase Savings and Revenue

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) 

Indirect Financial Benefit

Information Reporting: IRS Could Improve Cost Basis and Transaction Settlement 

Reporting Implementation (GAO-11-557) 

Indirect Financial Benefit

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) 

Indirect Financial Benefit

Improving allocation of enforcement resources

Tax Gap: IRS Could Significantly Increase Revenues by Better Targeting Enforcement 

Resources (GAO-13-151) 

Increase Revenue

Improving administration of installment agreements

2013 Tax Filing Season: IRS Needs to Do More to Address the Growing Imbalance 

between the Demand for Services and Resources (GAO-14-133) 

Increase Savings

Improving collection of unpaid taxes from Medicaid providers

Medicaid: Providers in Three States with Unpaid Federal Taxes Received Over $6 

Billion in Medicaid Reimbursements (GAO-12-857) 

Increase Savings

Improving corporate tax compliance

Corporate Tax Compliance: IRS Should Determine Whether Its Streamlined Corporate 

Audit Process Is Meeting Its Goals (GAO-13-662) 

Increase Revenue, Increase Savings, 

Indirect Financial Benefit

Tax Gap: Actions Needed to Address Noncompliance with S Corporation Tax Rules

(GAO-10-195) 

Increase Revenue

Improving examinations of tax returns

Tax Administration: IRS Could Improve Examinations by Adopting Certain Research 

Program Practices (GAO-13-480) 

Increase Revenue, Indirect Financial Benefit

Improving individual or corporate tax compliance

Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax 

Compliance Risks (GAO-13-516) 

Increase Revenue

Federal Tax Collection: Potential for Using Passport Issuance to Increase Collection of 

Unpaid Taxes (GAO-11-272) 

Increase Revenue
Appendix II: GAO Products with Open Matters 

for Congress and Recommendations to the 

Internal Revenue Service (IRS)

Page 38 GAO-14-605 IRS 2015 Budget

Report title and number Potential financial impact

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) 

Increase Savings, Indirect Financial Benefit

Improving offshore compliance

Offshore Tax Evasion: IRS Has Collected Billions of Dollars, But May be Missing 

Continued Evasion (GAO-13-318) 

Increase Revenue, Indirect Financial Benefit

Improving real estate tax compliance

Home Mortgage Interest Deduction: Despite Challenges Presented by Complex Tax 

Rules, IRS Could Enhance Enforcement and Guidance (GAO-09-769) 

Increase Revenue

Improving rental real estate compliance

Tax Gap: Actions That Could Improve Rental Real Estate Reporting Compliance

(GAO-08-956) 

Increase Revenue

Improving sole proprietors’ compliance

Tax Gap: Limiting Sole Proprietor Loss Deductions Could Improve Compliance but 

Would Also Limit Some Legitimate Losses (GAO-09-815) 

Indirect Financial Benefit

Improving tax credit administration

Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity

(GAO-12-549) 

Increase Savings and Revenue

Improving third party compliance

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

Miscellaneous Income Reporting Requirements (GAO-09-238) 

Increase Revenue, Indirect Financial Benefit

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) 

Increase Revenue

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) 

Increase Revenue, Indirect Financial Benefit

Reducing tax evasion

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

and Related Entities (GAO-10-968) 

Indirect Financial Benefit

Source: GAO.

Notes: Products with open matters and recommendations identified as of March 13, 2014. 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 III: Comments from the Internal 

Revenue Service

Page 39 GAO-14-605 IRS 2015 Budget

Appendix III: Comments from the Internal 

Revenue Service
Appendix III: Comments from the Internal 

Revenue Service

Page 40 GAO-14-605 IRS 2015 Budget
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 41 GAO-14-605 IRS 2015 Budget

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

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

Jehan Chase, Pawnee A. Davis, Mary Evans, Charles Fox, Suzanne 

Heimbach, Carol Henn, Felicia Lopez, Paul Middleton, Ed Nannenhorn, 

Sabine Paul, Mark Ryan, Erinn L. Sauer, Cynthia Saunders, Tamara 

Stenzel, and Jim Wozny made major contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(451078)
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