Internal Revenue Service 

(Dollars in Thousands) 

Appropriation / Budget Activity FY 2009 FY 2010 FY 2011 

ARRA Enacted1,2 Enacted Request $ Change % Change 

Taxpayer Services $2,293,000 $2,278,830 $2,321,975 $43,145 1.89%

 Pre-filing Taxpayer Assistance and Education 661,000 685,063 693,753 8,690 1.27%

 Filing and Account Services 1,632,000 1,593,767 1,628,222 34,455 2.16% 

Enforcement $5,117,267 $5,504,000 $5,797,400 $293,400 5.33%

 Investigations 611,601 637,694 651,966 14,272 2.24%

 Exam and Collections 4,355,186 4,706,350 4,974,618 268,268 5.70%

 Regulatory 150,480 159,956 170,816 10,860 6.79% 

Operations Support $3,867,011 $4,083,884 $4,108,000 $24,116 0.59%

 Infrastructure 875,538 900,852 889,929 ($10,923) -1.21%

 Shared Services and Support 1,269,642 1,296,629 1,337,776 41,147 3.17%

 Information Services 1,721,831 1,886,403 1,880,295 ($6,108) -0.32% 

Business Systems Modernization $229,914 $263,897 $386,908 $123,011 46.61% 

Health Insurance Tax Credit Administration $80,000 $15,406 $15,512 $18,987 $3,475 22.40% 

Subtotal Internal Revenue Service $80,000 $11,522,598 $12,146,123 $12,633,270 $487,147 4.01% 

Offsetting Collections - Reimbursable $113,896 $142,169 $144,592 2,423 1.70% 

Mandatory Appropriation - User Fees 165,521 187,100 194,100 7,000 3.74% 

Total Program Operating Level $80,000 $11,802,015 $12,475,392 $12,971,962 $496,570 3.98% 

1 FY 2009 Enacted excludes the Recovery Act, Administration Expenses account, funded in the Treasury Departmental Offices ($122M). 2 FY 2009 Enacted represents the approved FY 2009 Operating Plan. 

Explanation of Request 

The Internal Revenue Service (IRS) collects 

the revenue that funds the government and 

administers the nation’s tax laws. In FY 

2009, the IRS collected $2.345 trillion in 

taxes (gross receipts before tax refunds), 95 

percent of federal government receipts. In 

order to protect the flow of revenue to the 

government, the IRS pursues a robust 

service and enforcement agenda. The 

service agenda supports and protects the 

trillions in revenue that already comes into 

the Treasury every year from hundreds of 

millions of taxpayers. The enforcement 

agenda vigorously pursues those who evade 

their responsibility to pay the taxes they 

owe. 

Total resources to support the IRS activities 

for FY 2011 are $12,971,962,000. This 

includes $12,633,270,000 from direct 

appropriations, an estimated $144,592,000 

from reimbursable programs, and an 

estimated $194,100,000 from user fees. The 

direct appropriation is a $487,147,000 

increase, or 4.01 percent, more than the 

FY 2010 enacted level of $12,146,123,000. 

The IRS Strategic Plan 2009-2013 guides 

program and budget decisions and supports 

the Department of the Treasury Strategic 

Plan. The IRS Strategic Plan recognizes the 

increasing complexity of tax laws, changing 

business models, expanding use of 

electronic data and related security risks, 

accelerating growth in international tax 

activities, and growing human capital 

challenges. 

Department of the Treasury - Budget in Brief FY 2011 Page 65
The IRS Strategic Plan goals and objectives 

are: 

Improve Service to Make Voluntary 

Compliance Easier
 

Enforce the Law to Ensure Everyone Meets 

Their 

Obligation to Pay Taxes 

To improve service and make voluntary 

compliance easier, the IRS must: 

•	 Incorporate taxpayer perspectives to 

improve all service interactions; 

•	 Expedite and improve issue resolution 

across all interactions with taxpayers, 

making it easier to navigate the IRS; 

•	 Provide taxpayers with targeted, timely 

guidance and outreach; and 

•	 Strengthen partnerships with tax 

practitioners, tax preparers, and other third 

parties to ensure effective tax 

administration. 

To enforce the law to ensure everyone meets 

their obligations to pay taxes, the IRS must: 

•	 Proactively enforce the law in a timely 

manner while respecting taxpayer rights 

and minimizing taxpayer burden; 

•	 Expand enforcement approaches and tools; 

•	 Meet the challenges of international tax 

administration; 

•	 Allocate compliance resources using a 

data-driven approach to target existing and 

emerging high-risk areas; 

•	 Continue focused oversight of the taxexempt sector; and 

•	 Ensure that all tax practitioners, tax 

preparers, and other third parties in the tax 

system adhere to professional standards 

and follow the law. 

To achieve the service and enforcement goals, 

the IRS must: 

•	 Make the IRS the best place to work in 

government; 

•	 Build and deploy advanced information 

technology systems, processes, and tools to 

improve IRS efficiency and productivity; 

•	 Use data and research across the 

organization to make informed decisions 

and allocate resources; and 

•	 Ensure the privacy and security of data and 

safety and security of employees. 

The FY 2011 President’s Budget request for 

IRS provides the funding needed to implement 

key strategic priorities to achieve the Strategic 

Plan goals and objectives. 

Enforcement Program: The FY 2011 

President’s Budget request includes an 

Enforcement account increase of 

$293.4 million for investments in strong 

compliance programs, including a robust 

international enforcement initiative to address 

offshore tax evasion. The additional 

enforcement resources will address 

underreporting of income associated with 

international activities and expand 

enforcement efforts on noncompliance among 

corporate and high-wealth taxpayers. This 

increase is supported by a program integrity 

allocation adjustment that provides additional 

resources for the enforcement program. 

Increased resources for the IRS compliance 

programs yield direct, measurable results 

through high return on investment activities. 

The new enforcement personnel funded 

through a program integrity allocation 

adjustment in the FY 2011 President’s Budget 

will generate more than $1.9 billion in 

additional annual enforcement revenue once 

the new hires reach full potential in FY 2013. 

Vigorous enforcement also encourages 

voluntary compliance, further increasing 

Department of the Treasury - Budget in Brief FY 2011 Page 66
revenue. The return on investment estimate 

does not include the revenue impact from the 

deterrence value of these investments and 

other IRS enforcement programs, which is 

conservatively estimated to be at least three 

times the direct revenue impact. 

The tax law is complex and even sophisticated 

taxpayers can make honest mistakes on their 

tax returns. Accordingly, helping taxpayers 

understand their obligations under the tax law 

is critical to improving compliance. To this 

end, the IRS remains committed to a balanced 

program of assisting taxpayers in both 

understanding the tax law and remitting the 

proper amount of tax. 

Taxpayer Service Program: The FY 2011 

President’s Budget request includes a Taxpayer 

Services account increase of $43.1 million. 

The increase includes $20.9 million to 

improve telephone level of service, increasing 

the level of service performance target to 

75 percent from 70 percent in FY 2009 and 

71 percent in FY 2010. 

To continue the effort to move taxpayer 

service to the internet, and to support the 

Treasury effort to increase paperless 

transactions, an additional $25 million in 

Operations Support will be invested as part of 

a multi-year effort to improve the IRS.gov 

website infrastructure and redesign the 

IRS.gov website to meet taxpayer needs and 

the growing demand for more electronic 

services. Technology enhancements, including 

electronic filing and IRS.gov, allow more 

taxpayers to reach the IRS through the 

internet. In 2009, more than 1.7 billion web 

pages were viewed on www.IRS.gov, and 

more than 54 million taxpayers checked their 

refund status by accessing Where’s My 

Refund? in English or Spanish on the IRS 

website. Taxpayers also can use automated 

features found at 1-800-829-1040. In 

FY 2011, the IRS will complete the 

implementation of the Form 1040, U.S. 

Individual Income Tax Return, and supporting 

forms and schedules, and continue adding new 

forms and schedules to the electronic business 

portfolio to further increase web use. 

Providing quality taxpayer service is 

especially important to help taxpayers avoid 

making unintentional errors. Assisting 

taxpayers with their questions before they file 

their returns prevents inadvertent 

noncompliance and reduces burdensome postfiling notices and other correspondence from 

the IRS. 

In addition to the year-round assistance 

services previously listed, IRS services include 

issuance of tax forms and publications, rulings 

and regulations, Volunteer Income Tax 

Assistance (VITA) sites, and Tax Counseling 

for the Elderly (TCE) sites. Many of these 

sites provide information in both English and 

Spanish. 

Business Systems Modernization: The 

FY 2011 Budget provides $386.9 million for 

Business Systems Modernization to complete 

the new taxpayer account database and 

continue investments in electronic filing 

systems. Completion of the core taxpayer 

account database is the cornerstone of IRS IT 

modernization that will expedite refunds to 

140 million individual taxpayers; and allow 

the IRS to expand its online services to 

manage increasing taxpayer service demands. 

IRS Tax Preparer Strategy: In January 2010, 

the IRS announced multiple recommendations 

to increase oversight of federal tax return 

preparers, including new registration, testing, 

and continuing education requirements. The 

recommendations are intended to better 

leverage the tax return preparer community 

with the twin goals of increasing taxpayer 

compliance and ensuring uniform and high 

ethical standards of conduct for tax return 

Department of the Treasury - Budget in Brief FY 2011 Page 67
preparers. Planning and regulation preparation 

will proceed in FY 2010 with primary 

implementation of the initial changes 

anticipated in FY 2011. 

Purpose of Program 

The IRS serves individuals, businesses, and 

non-profit organizations, and processed more 

than 236 million tax returns in 2009. The 

system of voluntary tax compliance requires 

the IRS to excel in taxpayer service for those 

who are trying to meet their obligations under 

the law and provide a robust enforcement 

program for those who shirk their 

responsibilities to their fellow citizens. Most 

taxpayers comply with the law by filing 

returns and paying their taxes on time, but 

some do not comply because they do not 

understand their obligations under the complex 

tax laws. 

Helping taxpayers understand their obligations 

under the tax law is critical to improving 

compliance and addressing the tax gap, the 

difference between taxes owed and taxes paid 

on time. To this end, the IRS remains 

committed to a balanced program of assisting 

taxpayers to understand the tax law and remit 

the proper amount of tax and to pursue cases 

for which noncompliance is willful, even to 

the point of criminal tax evasion. The IRS 

remains committed to improving voluntary 

compliance and reducing the tax gap through 

both taxpayer service and enforcement. 

The FY 2011 President’s Budget request seeks 

funding to improve telephone level of service, 

to redesign IRS.gov, to support strong 

international tax and other compliance 

initiatives, and to complete the new taxpayer 

account database. 

Department of the Treasury - Budget in Brief FY 2011 Page 68
IRS FY 2011 Budget Highlights 

(Dollars in thousands) 

Health Business Taxpayer Operations Insurance Tax Appropriation Enforcement Systems Total Services Support Credit Modernization Administration 

FY 2010 Enacted Budget $2,278,830 $5,504,000 $4,083,884 $263,897 $15,512 $12,146,123 

Changes to Base 

Maintaining Current Levels (MCLs) $50,054 $110,506 $57,884 $889 $190 $219,523 

Pay Annualization 11,643 27,964 7,608 243 15 47,473 

Pay Inflation Adjustment 30,534 69,255 19,127 589 32 119,537 

Non-Pay Inflation Adjustment 2,495 4,460 29,026 140 36,121 

FERS Increased Participation 5,382 8,827 2,123 57 3 16,392 

Other Adjustment $3,494 $3,494 

Resource Adj to Support Recovery Act-HCTC Prgm Expansion 3,494 3,494 

Efficiencies/Savings (28,023) (7,092) (155,314) (209) (190,638) 

Non-Recur Savings (32,680) (32,680) 

Increase e-File Savings (23,186) 378 (22,808) 

IT Infrastructure and Process Improvements (75,000) (75,000) 

Reduce Procurement/Contracting (2,878) (2,246) (19,697) (179) (25,000) 

Reduce Printing, Travel, and Training (523) (1,979) (7,468) (30) (10,000) 

Reduce Tuition Assistance Program (1,436) (2,867) (847) (5,150) 

Eliminate Selective Mailing of Forms and Publications (20,000) (20,000) 

Subtotal Changes to Base $22,031 $103,414 (97,430) $889 $3,475 $32,379 

FY 2011 Base $2,300,861 $5,607,414 $3,986,454 $264,786 $18,987 $12,178,502 

Program Changes 

Program Reinvestment $2,792 $2,792 

Submission Processing Consolidation (Atlanta) 2,792 2,792 

Program Decrease (9,000) (9,000) 

Reduce Taxpayer Service Grant and Advocacy Programs (9,000) (9,000) 

Program Increases $27,322 $189,986 $121,546 $122,122 $460,976 

Taxpayer Service Initiatives $20,945 $25,000 $45,945 

Improve IRS.gov 25,000 25,000 

Increase Telephone Level of Service 20,945 20,945 

Enforcement Initiatives $6,377 $189,986 $51,083 $247,446 

Address Business and Individual International Compliance 1,779 97,527 21,780 121,086 

Reduce the Reporting Compliance Tax Gap 769 59,687 17,223 77,679 

Reduce the Nonfiling and Underpayment Tax Gap 91 28,166 9,924 38,181 

Support for Increased Enforcement Activities 3,738 1,262 5,000 

Maintain Recovery Act Staffing 4,606 894 5,500 

Business Systems Modernization (BSM) Initiative $45,463 $122,122 $167,585 

Continue Migration from Aging Tax Administration System 45,463 122,122 167,585 

Subtotal FY 2011 Program Changes $21,114 $189,986 $121,546 $122,122 $454,768 

Total FY 2011 President s Budget Request $2,321,975 $5,797,400 $4,108,000 $386,908 $18,987 $12,633,270 

Department of the Treasury - Budget in Brief FY 2011 Page 69
FY 2011 Budget Adjustments 

The IRS funding increase for FY 2011 is 

$487,147,000, which includes $219,523,000 

for maintaining current levels, a temporary 

base adjustment of $3,494,000 to support the 

Recovery Act’s expansion of the Health 

Coverage Tax Credit (HCTC), a decrease of 

$32,680,000 from non-recurring activities, a 

decrease of $157,958,000 from efficiencies 

and savings, and a program increase of 

$454,768,000 to improve taxpayer service, 

strengthen enforcement, and complete the new 

taxpayer account database. By FY 2013, the 

revenue-producing enforcement investments 

are projected to increase annual enforcement 

revenue by $1.9 billion. 

The budget request supports these activities by 

proposing the following initiatives: 

•	 $20,945,000 to increase the telephone level 

of service, which includes a $9.0 million 

reallocation from the Taxpayer Advocate 

Service (TAS), Low-Income Taxpayer 

Clinic (LITC) Grants program, Tax 

Counseling for the Elderly (TCE) program 

and the Volunteer Income Tax Assistance 

(VITA) Grants program; 

•	 $25,000,000 to improve and redesign the 

IRS.gov website; 

•	 $247,446,000 to reduce the tax gap by 

investing in a strong compliance program; 

and 

•	 $167,585,000 to complete development of 

the new taxpayer account database and 

continue investments in electronic filing 

systems. 

FY 2010 Enacted 

The FY 2010 enacted level for the IRS is 

$12,146,123,000, supporting an estimated 

95,070 FTE. 

Maintaining Current Levels 

Adjustments Necessary to Maintain Current 

Levels +$219,523,000 / 0 FTE Funds are 

requested for: FY 2011 cost of the January 

2010 pay increase of $47,473,000, the 

proposed January 2011 pay raise of 

$119,537,000, the cost of the increase in FERS 

agency contribution percentage of 

$16,392,000, and non-labor related items such 

as contracts, travel, supplies, equipment, and a 

GSA rent adjustment of $36,121,000. 

Base Adjustments 

Resource Adjustment to Support Recovery ActHCTC Program Expansion +$3,494,000 / 

0 FTE This temporary base increase will 

provide additional contractor funding for the 

continued support, sustainability, 

administration, and operation of the HCTC 

program. Taxpayer participation in the HCTC 

program is expected to grow because of the 

Recovery Act. The additional contractor 

support will allow HCTC to serve a 

significantly larger participant population. 

Technical FTE Adjustments $0 / -318 FTE 

This adjustment reflects permanent changes 

made to ensure FTE levels are fully funded in 

the base budget. 

Efficiencies and Savings 

Non-Recur Savings -$32,680,000 / 0 FTE 

This is the net of reductions of non-recurring, 

one-time costs associated with the IRS 

FY 2010 enforcement initiatives (e.g., IT 

equipment and training). 

Increase e-File Savings -$22,808,000 / 

-472 FTE This decrease is a result of savings 

from increased electronic filing (e-File), which 

is projected to lead to fewer returns filed on 

paper in FY 2011. The number of returns filed 

electronically is expected to increase 

Department of the Treasury - Budget in Brief FY 2011 Page 70
substantially in FY 2011 with the addition of 

the recently enacted Worker, Homeownership, 

and Business Assistance Act of 2009 (Public 

Law 111-92), which requires electronic filing 

by all tax preparers filing more than ten returns 

in a calendar year. 

Information Technology (IT) Infrastructure 

and Process Improvements 

-$75,000,000 / 0 FTE The IRS will reduce 

infrastructure costs through process 

improvements in IT infrastructure. Initiatives 

such as the Information Technology 

Infrastructure Library (ITIL) will allow the 

IRS to improve the quality of IT services. In 

addition, the IRS is working to achieve a 

Capability Maturity Model Integrated (CMMI) 

certification that will yield efficiencies in 

software engineering. 

Reduce Procurement/Contracting 

-$25,000,000 / 0 FTE In accordance with 

Presidential guidance on controlling 

contracting costs, the IRS will generate 

savings by improving the effectiveness of 

existing acquisition practices and reduce the 

cost of contracts. 

Reduce Printing, Travel, and Training 

-$10,000,000 / 0 FTE The IRS will generate 

savings by reducing agency-wide printing of 

selected internal manuals, selected training 

materials, and other items, non-case related 

travel and non-technical training. 

Reduce Tuition Assistance Program (TAP) 

-$5,150,000 / 0 FTE The Tuition Assistance 

Program provides funding to employees for 

courses that support both career development 

and the IRS mission. In FY 2011, the IRS will 

generate savings by restructuring this program. 

Eliminate Selective Mailing of Forms and 

Publications -$20,000,000 / 0 FTE 

The IRS will generate savings by eliminating 

the non-mandated notice inserts; the automatic 

mailing of Form 1040, U.S. Individual Tax 

Return, tax packages; and the automatic 

mailing of business tax products. 

Program Reinvestment 

Submission Processing Consolidation 

(Atlanta) +$2,792,000 / 0 FTE Increased use 

of e-File has led to consolidation of the 

individual return processing sites. A portion of 

the Increased e-File Savings will be reinvested 

to fund the one-time separation costs 

associated with the September 30, 2011 

closure of the Atlanta submission processing 

site. As the Atlanta consolidation approaches, 

the IRS will assist employees to find 

employment either in or outside the 

organization. 

Program Decrease 

Reduce Taxpayer Service Grant and Advocacy 

Programs -$9,000,000 / 0 FTE The FY 2010 

appropriation included an additional 

$3,500,000 to expand Taxpayer Advocate 

Service case processing activities; $500,000 to 

increase the LITC grants program; $1,000,000 

to increase the TCE program; and $4,000,000 

to increase the VITA grants program. This 

program decrease will realign the programs to 

the 2010 requested level to fund the Increase 

Telephone Level of Service initiative. 

Program Increases 

Improve IRS.gov +$25,000,000 / 0 FTE This 

initiative, part of a multi-year plan, will initiate 

the migration of IRS web content and 

applications from the current outdated portal 

infrastructures to a new consolidated IRS web 

environment. These funds will enable the IRS 

to complete the first phase of the migration of 

the taxpayer-facing content and applications 

and to begin the second phase of the migration 

and transition of approximately 35 percent of 

the public and partner-facing applications to 

the new environment. 

Increase Telephone Level of Service 

+$20,945,000 / 0 FTE Recent legislation has 

led to an unprecedented demand for telephone 

Department of the Treasury - Budget in Brief FY 2011 Page 71
services over the past few years. In addition, 

the additional complexity of – and time needed 

to resolve – many phone calls, resulted in a 

decline in the telephone level of service. This 

initiative will improve the telephone level of 

service from a projected 71 percent in 

FY 2010 to a target of 75 percent in FY 2011 

through a program increase of $11.9 million 

and a $9.0 million reallocation from TAS and 

the LITC, TCE and VITA grant programs. 

Without the $9.0 million reallocation, the 

FY 2011 level of service performance target 

would be 74 percent. 

Address Business and Individual International 

Compliance +$121,086,000 / +781 FTE This 

initiative supports the Presidential priority to 

address offshore tax evasion and builds on the 

IRS FY 2010 international enforcement 

initiative. It will allow the IRS to continue its 

multi-year investment in international tax 

compliance activities. It increases coverage of 

the most strategically important international 

issues, including large enterprises with 

international components operated by 

businesses and investors through multiple 

interrelated financial and tax entities and highwealth individuals and the complex business 

enterprises they control. 

This initiative will increase examinations of 

additional international issues pertaining to 

international structures involving tiered passthrough entities, corporations, and high-wealth 

individuals by a projected 4,864 cases. The 

increase in examinations will generate 

$812.2 million in additional enforcement 

revenue once the new hires reach full potential 

in FY 2013. 

Reduce the Reporting Compliance Tax Gap 

+$77,679,000 / +700 FTE This initiative will 

improve compliance by increasing 

examination of field and correspondence 

individual return audits by 61,100 annually; 

business return audits by 1,200; audits 

targeting employment, excise, and estate and 

gift taxes by 9,300; and Automated 

Underreporter (AUR) document matching 

individual return audits by 234,000. This 

request will generate $659.6 million in 

additional enforcement revenue once new 

hires reach full potential in FY 2013. 

Reduce the Nonfiling and Underpayment Tax 

Gap +$38,181,000 / +406 FTE This 

initiative will allow the IRS to broaden its 

collection coverage and address the tax gap 

more effectively by increasing staff resources 

for field collection and the Automated 

Collection System (ACS) program. The 

additional staff will produce an additional 

144,000 tax delinquency accounts (TDA) (i.e., 

balance due accounts where returns were filed, 

but the taxes have not been paid) and 

22,500 tax delinquency investigations (TDI) 

(i.e., investigations of taxpayers with unfiled 

returns who have not responded to a notice). 

This request will generate $474.4 million in 

additional enforcement revenue once new 

hires reach full potential in FY 2013. 

Support of Increased Enforcement Activities 

+$5,000,000 / +65 FTE Most tax 

enforcement actions result in downstream 

Accounts Management activities, including 

account adjustments, assisted phone calls, 

amended returns, and installment agreement 

preparation. This funding will allow the IRS 

to assist taxpayers to resolve issues early in the 

enforcement process, pay their taxes, and 

respond to and close out various enforcement 

actions. Improving the response to taxpayers 

who have received enforcement notices should 

increase revenue and reduce interest paid. 

Maintain Recovery Act Staffing +$5,500,000 / 

+31 FTE Among other responsibilities, the 

IRS is mandated by the Recovery Act to 

administer the new bond provisions. The IRS 

is required to issue a direct payment to the 

bond issuer. The unique nature of this new 

role requires continuous compliance reviews 

Department of the Treasury - Budget in Brief FY 2011 Page 72
Return on Investment for Enforcement Initiatives 

Dollars in Millions 

First Year (FY 2011) Full Performance (FY 2013) 

FY 2011 Enforcement Investment Cost Revenue ROI Cost Revenue ROI 

All Enforcement Initiatives $247.4 $719.8 2.9 $209.6 $1,946.2 9.3 

Direct Revenue Producing Initiatives $236.9 $719.8 3.0 $200.6 $1,946.2 9.7 

Address Business and Individual International Compliance 121.1 300.8 2.5 101.3 812.2 8.0 

Reduce the Reporting Compliance Tax Gap 77.7 211.7 2.7 65.8 659.6 10.0 

Reduce the Nonfiling and Underpayment Tax Gap 38.1 207.3 5.4 33.5 474.4 14.2 

Other Enforcement Initiatives $10.5 $0.0 0.0 $9.0 $0.0 0.0 

and verification throughout the administrative Recovery Act to administer ongoing Recovery 

life of the bonds. This initiative will extend Act bond provisions. 

IRS staffing resources received in the 

Business System Modernization (BSM) 

+$167,585,000 / +156 FTE The BSM 

increase is a top priority for the IRS and will 

allow the completion of the new taxpayer 

account database for the 2012 filing season. 

The new taxpayer account database will result 

in faster refunds for taxpayers, improve 

service accuracy and timeliness, and enhance 

data security. Completion of the taxpayer 

account database is a prerequisite for other 

major initiatives such as significant expansion 

of online paperless services and nextgeneration enforcement technologies. The 

ability of the IRS to support increasingly 

complex taxpayer service and compliance 

initiatives will be severely limited until it is 

completed. 

Explanation of Budget Activities 

Taxpayer Services 

The FY 2011 President’s Budget request is 

$2,321,975,000 in direct appropriations, an 

estimated $34,159,000 from reimbursable 

programs, and an estimated $127,000,000 

from user fees, for a total operating level of 

$2,483,134,000. The direct appropriations 

level is an increase of 1.9 percent from the 

FY 2010 enacted level. This appropriation 

funds the following budget activities. 

Pre-Filing Taxpayer Assistance and Education 

($693,753,000 from direct appropriations and 

an estimated $1,459,000 from reimbursable 

programs) This budget activity funds services 

to assist with tax return preparation, including 

tax law interpretation, publication, production, 

and advocate services. In addition, funding for 

these programs continues to emphasize 

taxpayer education, outreach, increased 

volunteer support time and locations, and 

enhancing pre-filing taxpayer support through 

electronic media. 

Filing and Account Services ($1,628,222,000 

from direct appropriations, an estimated 

$32,700,000 from reimbursable programs, and 

an estimated $127,000,000 from user fees) 

This budget activity funds programs that 

provide filing and account services to 

taxpayers, process paper and electronicallysubmitted tax returns, issue refunds, and 

maintain taxpayer accounts. The IRS 

continues to make progress in decreasing 

paper returns and increasing the use of 

electronic filing and payment methods. 

Department of the Treasury - Budget in Brief FY 2011 Page 73
Enforcement 

The FY 2011 President’s Budget request is 

$5,797,400,000 in direct appropriations and 

an estimated $61,506,000 from reimbursable 

programs for a total operating level of 

$5,858,906,000. The direct appropriations 

level is an increase of 5.3 percent from the 

FY 2010 enacted level and includes 

additional tax enforcement activities funded 

through a program integrity allocation 

adjustment. This appropriation funds the 

following budget activities. 

Investigations ($651,966,000 from direct 

appropriations and an estimated 

$50,567,000 from reimbursable programs) 

This budget activity funds the criminal 

investigations programs that uncover 

criminal violations of the internal revenue 

tax laws and other financial crimes, enforce 

criminal statutes relating to these violations, 

and recommend prosecution as warranted. 

These programs identify and document the 

movement of both legal and illegal sources 

of income to identify and document cases of 

suspected intent to defraud. It provides 

resources for international investigations 

involving U.S. citizens residing abroad, nonresident aliens and expatriates and includes 

investigation and prosecution of tax and 

money-laundering violations associated with 

narcotics organizations. 

Exam and Collections ($4,974,618,000 from 

direct appropriations and an estimated 

$10,245,000 from reimbursable programs) 

This budget activity funds programs that 

enforce the tax laws and increase 

compliance through examination and 

collection programs that ensure proper 

payment and tax reporting. It also includes 

programs such as specialty program 

examinations (employment tax, excise tax 

and estate and gift exams), international 

collections and international examinations. 

The budget activity also supports appeals 

and litigation activities associated with exam 

and collection. 

Regulatory ($170,816,000 from direct 

appropriations and an estimated $694,000 

from reimbursable programs) This budget 

activity funds the development and printing 

of published IRS guidance materials; 

interpretation of tax laws; advice on general 

legal servicing, ruling and agreements; 

enforcement of regulatory rules, laws, and 

approved business practices; and supporting 

taxpayers in the areas of pre-filing 

agreements, determination letters, and 

advance pricing agreements. The Office of 

Professional Responsibility is funded within 

this budget activity and is responsible for 

identifying, communicating, and enforcing 

the Treasury Circular 230 standards of 

competence, integrity, and conduct of 

professionals representing taxpayers before 

the IRS. 

Operations Support 

The FY 2011 President’s Budget request is 

$4,108,000,000 in direct appropriations, an 

estimated $48,927,000 from reimbursable 

programs, and an estimated $67,100,000 

from user fees, for a total operating level of 

$4,224,027,000. The direct appropriation 

level is an increase of 0.6 percent from the 

FY 2010 enacted level. This appropriation 

funds the following budget activities. 

Infrastructure ($889,929,000 from direct 

appropriations, an estimated $398,000 from 

reimbursable programs, and an estimated 

$16,100,000 from user fees) This budget 

activity funds administrative services related 

to space and housing, rent and space 

alterations, building services, maintenance, 

guard services, and non-IT equipment. 

Department of the Treasury - Budget in Brief FY 2011 Page 74
Shared Services and Support ($1,337,776,000 

from direct appropriations and an estimated 

$33,110,000 from reimbursable programs) 

This budget activity funds policy management, 

IRS-wide support for research, strategic 

planning, communications and liaison, 

finance, human resources, and equal 

employment opportunity and diversity services 

and programs. It also funds printing and 

postage, business systems planning, security, 

corporate training, legal services, procurement, 

and specific employee benefits programs. 

Information Services ($1,880,295,000 from 

direct appropriations, an estimated 

$15,419,000 from reimbursable programs, and 

an estimated $51,000,000 from user fees) 

This budget activity funds staffing, equipment, 

and related costs to manage, maintain, and 

operate the information systems critical to the 

support of tax administration programs. The 

IRS business programs rely on these systems 

to process tax and information returns, account 

for tax revenues collected, send bills for taxes 

owed, issue refunds, assist in the selection of 

tax returns for audit, and provide 

telecommunications services for all business 

activities, including the public’s toll-free 

access to tax information. 

Business Systems Modernization (BSM) 

The FY 2011 President’s Budget request is 

$386,908,000 in direct appropriations. This is 

an increase of 46.6 percent from the FY 2010 

enacted level. This appropriation funds the 

following budget activity. 

BSM ($386,908,000 from direct 

appropriations) This budget activity funds the 

planning and capital asset acquisition of 

information technology (IT) to continue the 

modernization of IT systems and to complete 

the new taxpayer account database. The 

completion of the core taxpayer account 

database is the cornerstone of modernization 

and is a prerequisite to the development of the 

next generation of IRS service and 

enforcement initiatives. The integration 

strategy includes a particular focus on 

enhanced information technology security 

practices and robust accounting and financial 

management controls. This activity also funds 

the ongoing development of the Modernized 

e-File platform for filing tax returns 

electronically. It also funds BSM labor and 

related contract costs. 

Health Insurance Tax Credit Administration 

(HITCA) 

The FY 2011 President’s Budget request is 

$18,987,000 in direct appropriations. This is 

an increase of 22.4 percent from the FY 2010 

enacted level. This appropriation funds the 

following budget activity. 

HITCA ($18,987,000 from direct 

appropriations) This budget activity funds 

costs to administer a refundable tax credit for 

health insurance to qualified individuals, 

which was enacted as part of the Trade 

Adjustment Assistance Reform Act of 2002. 

Legislative Proposals 

The FY 2011 President’s Budget includes a 

number of legislative proposals intended to 

improve tax compliance with minimum 

taxpayer burden. These proposals will 

specifically target the tax gap and generate 

nearly $26 billion over the next ten years. 

Among other proposals, the Administration 

proposes to expand information reporting, 

improve compliance by businesses, strengthen 

tax administration, and expand penalties. 

Expand information reporting – Compliance 

with the tax laws is highest when payments are 

subject to information reporting to the IRS. 

Specific information reporting proposals 

would: 

Department of the Treasury - Budget in Brief FY 2011 Page 75
•	 Require information reporting for private 

separate accounts of life insurance 

companies; 

•	 Require information reporting on 

payments for services to corporations; 

•	 Require a certified Tin (Taxpayer 

Identification Number) from contractors; 

•	 Require increased information reporting 

on certain government payments; 

•	 Increase information return penalties; 

and 

•	 Require information reporting on 

expense payments relating to rental 

property. 

Improve compliance by businesses – 

Improving compliance by businesses of all 

sizes is important. Specific proposals to 

improve compliance by businesses would: 

•	 Provide Treasury regulatory authority to 

require that information returns be filed 

electronically; 

•	 Require corporations and partnerships 

with assets of $10 million or more that 

are required to file Schedule M-3 to file 

their tax returns electronically; 

•	 Provide Treasury regulatory authority to 

reduce the current threshold, filing 250 

or more returns during a calendar year, 

to require electronic filing of certain 

other large taxpayers not required to file 

Schedule M-3 (such as exempt 

organizations); 

•	 Implement standards clarifying when 

employee leasing companies can be held 

liable for their clients’ federal 

employment taxes; and 

•	 Increase certainty about the rules 

pertaining to classification of employees 

as independent contractors. 

Strengthen tax administration – The IRS has 

taken a number of steps under existing law 

to improve compliance. These efforts would 

be enhanced by specific tax administration 

proposals that would: 

•	 Expand IRS access to information in the 

National Directory of New Hires for tax 

administration purposes; 

•	 Make repeated willful failure to file a tax 

return a felony; 

•	 Facilitate tax compliance with local 

jurisdictions; 

•	 Extend statutes of limitations where state 

tax adjustments affect federal tax 

liability; 

•	 Improve the investigative disclosure 

statute; 

•	 Repeal the requirement of a partial 

payment with an application for an offerin-compromise; 

•	 Allow assessment of criminal restitution 

as tax; and 

•	 Codify “economic substance” doctrine. 

Expand penalties – Penalties play an 

important role in discouraging intentional 

noncompliance. A specific proposal to 

expand penalties would: 

•	 Impose a penalty on failure to comply 

with electronic filing requirements; and 

•	 Clarify that the bad check penalty 

applies to electronic checks and other 

forms of payment. 

Improve Tax Administration and Other 

Miscellaneous Proposals 

The Administration has put forward 

additional proposals relating to IRS 

administrative reforms. These proposals 

would: 

•	 Improve the foreign trust reporting 

penalty; 

•	 Apply the Federal Payment Levy 

Program to contractors before providing 

Collection Due Process; and 

•	 Clarify that a vendor levy on “goods and 

services” would not exclude “property”. 

Department of the Treasury - Budget in Brief FY 2011 Page 76
IRS Performance by Programs 

Customer Contacts Resolved per Staff Year - E 12,634 9,398 

Taxpayer Service Customer Service Representative (CSR) Level of Service Oe (L) 52.8% 71.0% 

7,648 12,918 10,386 10,181 

82.1% 70.0% 70.0% 75.0% 

57.1% 65.9% 64.0% 81.0% 

137 138 138 132 132 

92.9% 95.3% 94.3% 92.0% 92.5% 94.0% 

2.5% 2.6% 2.6% 2.5% 3.0% 3.4% 

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 

Programs Performance Measure Actual Actual Actual Target Target Target 

Percent of Individual Returns Processed Electronically (%) - Oe (L) 57.6% 70.2% 

Examination Efficiency - Individual (1040) - E (L) 128 

Enforcement Automated Collection System Accuracy (%) - Oe 

AUR Coverage E (L) 

Key: Oe - Outcome Measure, E - Efficiency Measure, Ot - Output/Workload Measure, L - Long-Term Goal 

Description of Performance 

In FY 2009, IRS continued to improve its 

service and enforcement results. The 

following is a summary of significant 

program performance improvements. 

Enforcement 

Enforcement of the tax laws is an integral 

component of the IRS effort to enhance 

voluntary compliance. IRS enforcement 

activities, such as examination and 

collection, target elements of the tax gap and 

remain a high priority. In FY 2009, the IRS 

expanded its enforcement presence in the 

international field, continued to pursue highwealth, noncompliant taxpayers, and 

initiated action to better leverage the tax 

return preparer community. 

Total enforcement revenue was $48.9 billion 

in FY 2009. The IRS showed steady 

progress in increasing its audit coverage: 

•	 Total individual audits increased 

2.6 percent; 

•	 Automated Underreporter (AUR) 

contact closures increased 2.6 percent; 

•	 High-wealth audits increased 

11.2 percent; and 

•	 Large corporate audits increased 

2.6 percent compared to 2008, a 

significant achievement given the size 

40 

50 

60 

34.1 37.6 43.1 47.3 48.7 

59.2 56.4 

48.9 

30 

20 

10 

0 

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 

(more than $10 million) and complexity 

of these corporate entities. 

IRS Enforcement Revenue ($ Billions) 

In FY 2009, the IRS placed extraordinary 

focus on detecting and bringing to justice 

those who hide assets overseas to avoid 

paying tax. As part of an overall IRS 

strategy to improve offshore compliance, the 

IRS implemented initiatives to identify U.S. 

taxpayers who engaged in offshore tax 

evasion schemes. In August 2009, the IRS 

reached agreement with Swiss authorities 

that will result in the IRS receiving an 

unprecedented amount of information on 

taxpayers who evaded their tax obligations 

by hiding money offshore at UBS. This 

represents a major step forward for the IRS 

in its efforts to combat offshore tax evasion 

and will send a clear message to people 

hiding income and assets offshore that the 

IRS will vigorously pursue tax cheats, no 

matter how remote or secret the location. 

Department of the Treasury - Budget in Brief FY 2011 Page 77
At the same time, the IRS established an 

offshore voluntary disclosures/penalty 

framework for taxpayers to disclose their 

offshore activities. The framework provided 

taxpayers the opportunity to: 

•	 Calculate the total cost of resolving all 

offshore tax issues; 

•	 Become compliant with U.S. tax laws; 

•	 Make voluntary disclosures that will be 

used to further the IRS understanding of 

how foreign accounts and foreign entities 

are promoted to U.S. taxpayers as ways to 

avoid or evade tax; and 

•	 Provide data to be used in developing 

additional IRS strategies to inhibit 

promoters and facilitators from soliciting 

new clients. 

As a result of the offshore voluntary disclosure 

program that ran through October 15, 2009, 

more than 14,700 taxpayers with offshore 

accounts voluntarily came forward to disclose 

information bringing them back into the U.S. 

tax system. A key aspect of future 

international offshore work will be mining the 

information from people who came forward to 

identify financial institutions, advisors, and 

others who promote or otherwise helped U.S. 

taxpayers hide assets and income offshore. 

In FY 2009, the IRS continued to investigate 

tax, money laundering, and other financial 

crimes that adversely affect tax administration. 

Performance levels for the criminal 

investigation program remained high during 

FY 2009, with 3,848 completed criminal 

investigations and 2,105 convictions. 

Maintaining a strong enforcement presence in 

the tax-exempt sector is important to ensure 

that charitable organizations are not used for 

non-charitable or illegal purposes. During 

FY 2009, the IRS increased tax-exempt and 

government entities compliance contacts by 

10 percent over FY 2008 levels. 

Taxpayer Service 

In FY 2009, the IRS continued to improve its 

services by providing year-round assistance to 

millions of taxpayers through multiple 

channels. Demand for telephone services 

remained high as taxpayers called to obtain 

information regarding economic stimulus 

payments, new Recovery Act credits, and 

prior year adjusted gross income (AGI) 

numbers needed for electronic filing. The 

significant increases in call demand stressed 

existing resources, resulting in a lower 

customer level of service. Despite the high 

call volume, the IRS continued to focus on the 

accuracy of information provided to taxpayers 

as both Toll-Free Tax Law and Toll-Free 

Accounts Accuracy performance surpassed the 

FY 2008 record-breaking numbers. The 

following chart shows the call volume from 

FY 2005 through FY 2009. 

Call Volume (in Millions) 

187 203 212 

389 

296 

0 

50 

100 

150 

200 

250 

300 

350 

400 

450 

FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 

The Budget provides a significant investment 

to increase level of service by adding 

resources to meet the ever increasing demand 

and continuing to make efficiency 

improvements such as automated self-service 

applications that allow taxpayers to obtain 

information on less complex issues such 

as refund inquiries. These improvements free 

up staff to deal with the more complex tax law 

issues stemming from the passage of the 

Recovery Act and the Worker, 

Homeownership, and Business Assistance Act 

of 2009. 

In FY 2009, there were more than 296 million 

visits to IRS.gov. Taxpayers visited the 

website to obtain information on the Recovery 

Department of the Treasury - Budget in Brief FY 2011 Page 78
Rebate Credit, to determine if they qualify for 

the Earned Income Tax Credit (EITC), to track 

the status of their refunds using the Where’s 

My Refund? application, and to get the most 

up-to-date information on Recovery Act 

credits. More than 54 million taxpayers used 

Where’s My Refund?, a 39 percent increase 

over the same period in FY 2008. During 

FY 2009, the IRS received more than 

296 million calls and helped more than 

6.2 million taxpayers at 401 Taxpayer 

Assistance Centers. The Budget will continue 

supporting these self-service options as well 

as support the development of additional 

enhancements such as calculators, on-line 

tools and information on new legislation in an 

easy, accessible format. In addition, the 

Budget supports a multi-year effort to improve 

the IRS.gov website to meet taxpayer needs 

and the growing demand for more electronic 

services. The new web environment will 

improve customer satisfaction by providing an 

enhanced look and feel, making navigation on 

the site easier, and improve the user’s ability 

to locate desired information and access 

applications. 

Despite these challenges, the IRS delivered 

another successful filing season. During 

FY 2009, the IRS received 144.4 million 

individual returns, 11.2 million fewer than 

2008, when millions of taxpayers filed solely 

to receive an Economic Stimulus Payment. 

The number of refunds issued increased 

3.5 percent to 111.4 million. The percentage 

of individual returns filed electronically 

reached 66 percent, with more than 95 million 

individual tax returns filed electronically, 

compared to 89.6 million in 2008, an increase 

of 6 percent. During 2009, home computer 

filing increased to more than 32.2 million, an 

increase of 19 percent. 

The IRS provided extensive media coverage 

and expanded electronic outreach activities to 

make taxpayers aware of new credits, 

deductions, and exclusions for which they 

qualified. A second Super Saturday event was 

held in FY 2009, and the IRS provided more 

than 11,000 taxpayers with tax assistance and 

return preparation. The event was the largest 

one-day outreach service event in IRS history. 

The IRS also provided assistance to millions 

of taxpayers by expanding partnerships with 

nonprofit and community organizations, 

opening more than 12,100 free tax preparation 

sites nationwide. 

Business System Modernization 

In FY 2009, IRS modernization efforts focused 

on providing more sophisticated tools to 

taxpayers. The Customer Account Data 

Engine (CADE), Modernized e-File (MeF), 

and Account Management Services (AMS) 

modernization projects delivered the changes 

necessary for a successful filing season, 

supported implementation of the Recovery Act 

provisions, and provided audit trails 

addressing security vulnerabilities. These core 

technology systems, used to manage taxpayer 

data and facilitate service and enforcement 

work, met schedule estimates for most releases 

delivering significant business value. 

In FY 2009, the IRS revised its CADE strategy 

to focus on the completion of the new taxpayer 

account database. The Budget will help the 

IRS implement the new taxpayer account 

database for the 2012 filing season. The new 

database will allow the migration of 

140 million individual taxpayers to a 

modernized, relational database that will 

support daily processing and result in faster 

refunds for all individual refund filers. Daily 

updating of individual taxpayer accounts by 

2012 also will improve taxpayer service and 

accuracy and reduce interest paid on late 

refunds. The daily processing environment 

also will have improved data security and 

allow the development of new tools to combat 

fraud and improve enforcement activities. 

Completion of the taxpayer account database 

is the prerequisite for other major initiatives, 

including significant expansion of online 

services and transactions and the next 

generation of enforcement technologies. 

Department of the Treasury - Budget in Brief FY 2011 Page 79