Internal Revenue Service 

Appropriation / Budget Activity FY 2008 FY 2009 FY 2010

Enacted1 ARRA Enacted2 Request $ Change % Change

Taxpayer Services $2,191,085 $2,293,000 $2,269,830 ($23,170) -1.01%

 Pre-filing Taxpayer Assistance and Education 645,253 661,000 676,063 15,063 2.28%

 Filing and Account Services 1,545,832 1,632,000 1,593,767 (38,233) -2.34%

Enforcement 4,780,000 5,117,267 5,504,000 386,733 7.56%

 Investigations 592,906 603,466 637,694 34,228 5.67%

 Exam and Collections 4,037,812 4,363,826 4,706,350 342,524 7.85%

 Regulatory 149,282 149,975 159,956 9,981 6.66%

Operations Support 3,841,109 3,867,011 4,082,984 215,973 5.59%

 Infrastructure 826,313 883,325 900,852 17,527 1.98%

 Shared Services and Support 1,291,296 1,254,542 1,296,629 42,087 3.35%

 Information Services 1,723,500 1,729,144 1,885,503 156,359 9.04%

Business Systems Modernization 267,090 229,914 253,674 23,760 10.33%

Health Insurance Tax Credit Administration 15,235 80,000 15,406 15,512 106 0.69%

Subtotal, Internal Revenue Service $11,094,519 $80,000 $11,522,598 $12,126,000 $603,402 5.24%

Offsetting Collections - Reimbusable 140,207 143,611 147,101 3,490 2.43%

Mandatory Appropriation - User Fees 246,946 175,700 167,700 (8,000) -4.55%

Total Program Operating Level $11,481,672 $80,000 $11,841,909 $12,440,801 $598,892 5.06% 1 The FY 2008 Enacted Budget reflects the FY 2008 Operating Plan which includes a transfer of $9.6M between Taxpayer Services and Operations Support and includes 

supplemental funding for Economic Stimulus payment of $202.1M.

2 The FY 2009 Enacted column excludes the Recovery Act, Administrative Expenses account, funded in the Treasury Departmental Offices ($123M).

Explanation of Request

The Internal Revenue Service (IRS) collects 

the revenue that funds the government and 

administers the nation’s tax laws. The IRS 

collected $2.7 trillion in FY 2008, 96 percent 

of total federal receipts. In order to protect 

the flow of revenues to the government, the 

IRS pursues a robust service and enforcement 

agenda. The service agenda is designed to 

support and protect the trillions in revenue 

from hundreds of millions of taxpayers that 

already come into the Treasury every year. 

The enforcement agenda is designed to 

vigorously pursue those who evade their 

responsibility to pay the taxes they owe. 

Total resources to support the IRS activities 

for FY 2010 are $12,440,801,000. This 

includes $12,126,000,000 from direct 

appropriation, an estimated $147,101,000 

from reimbursable programs, and an estimated 

$167,700,000 from user fees. The direct 

appropriation is a $603,402,000 increase, or 

an increase of 5.2 percent, over the FY 2009 

enacted level of $11,522,598,000 (excludes 

funding to implement the American Recovery 

and Reinvestment Act (ARRA) of 2009 

(Public Law 111-5)). 

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. 

The IRS strategic plan goals and objectives 

are: 

Goal 1 Improve Service to Make 

Voluntary Compliance Easier 

Goal 2 Enforce the Law to Ensure 

Everyone Meets Their Obligation 

to Pay Taxes 

Department of the Treasury - Budget in Brief FY 2010 Page 55
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 IRS; 

• Provide taxpayers with targeted, timely 

guidance and outreach; and 

• Strengthen partnerships with tax 

practitioners, preparers, and other third 

parties to ensure effective tax 

administration. 

To enforce the law to ensure everyone meets 

their obligation 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 2010 President’s Budget Request for 

IRS provides the funding needed to implement 

key strategic priorities. 

Enforcement Program: The FY 2010 

President’s Budget request includes program 

increases of $332.2 million for investments in 

strong compliance programs, including a 

robust portfolio of international enforcement 

initiatives. The Budget request includes 

additional resources for enhanced tax 

enforcement through a program integrity 

allocation adjustment.

 

Increased resources for the IRS compliance 

programs yield direct measurable results 

through high return-on-investment activities. 

The new enforcement personnel funded in the 

FY 2010 President’s Budget will generate 

$2.0 billion in additional annual enforcement 

revenue once the new hires reach full potential 

in FY 2012. This estimate does not account 

for the deterrent effect of IRS enforcement 

programs, which are conservatively estimated 

to be at least three times larger than the direct 

revenue impact. 

The tax law is complex, and even 

sophisticated taxpayers make honest mistakes 

on their tax returns. Accordingly, helping 

taxpayers understand their obligations under 

the tax law is a 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 2010 

President’s Budget request continues 

improvements to both the quality and 

efficiency of taxpayer service, using a variety 

of person-to-person, telephone, and web-based 

methods to help people understand their tax 

obligations and pay their taxes. The IRS 

taxpayer service program is funded in the 

Department of the Treasury - Budget in Brief FY 2010 Page 56
Taxpayer Services and Operations Support 

appropriations. 

Providing quality taxpayer service is 

fundamental to keeping honest taxpayers in 

the system. It also helps them avoid making 

unintentional errors before returns are filed, 

which in turn reduces the need for follow up 

correspondence from the IRS. The IRS 

provides year-round assistance to millions of 

taxpayers, including outreach and education 

programs, issuance of tax forms and 

publications, rulings and regulations, tollfree call centers, the IRS.gov web site, 

Taxpayer Assistance Centers (TACs), 

Volunteer Income Tax Assistance (VITA) 

sites, and Tax Counseling for the Elderly 

(TCE) sites. 

 

American Recovery and Reinvestment 

Act: ARRA includes a number of tax 

provisions for which IRS implementation is 

now underway, including among others: 

individual tax credits; tax incentives for 

business; bond incentives along with tax 

exempt and tax-favored bonds for economic 

recovery; and a tax credit to provide 

discounted health benefits to certain workers 

who have lost their jobs. IRS will be able to 

continue to implement and administer these 

critical tax programs within the levels 

contained in this Budget request.

Purpose of Program 

The IRS serves individuals, businesses, and 

non-profit organizations, and processes over 

249 million tax returns annually. Our 

system of voluntary tax compliance requires 

the IRS to excel at taxpayer service for those 

who are trying to meet their obligations 

under the law and enforcement programs 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 

either because they do not understand their 

obligations under our complex tax laws, or 

because they seek to avoid those obligations. 

The FY 2010 President’s Budget request 

seeks funding to improve the responsiveness 

of taxpayer service, to support a robust 

portfolio of international tax and other 

compliance initiatives, and to address 

critical information technology 

infrastructure needs to allow the IRS to 

adapt to the complex and constantly 

changing environment in which the IRS 

operates. 

Department of the Treasury - Budget in Brief FY 2010 Page 57
IRS FY 2010 Budget Highlights

(Dollars in thousands)

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

FY 2009 Enacted $2,293,000 $5,117,267 $3,867,011 $229,914 $15,406 $11,522,598

Changes to Base

Maintaining Current Levels (MCLs) $60,195 $133,815 $61,060 $1,153 $106 $256,329

Pay Annualization 20,135 46,489 13,005 412 13 80,054

Pay Inflation Adjustment 38,828 85,486 23,816 741 23 148,894

Non-Pay Inflation Adjustment 2,463 3,680 24,829 141 31,113

Government-wide Reduction for Productivity Improvements (1,231) (1,840) (10,590) (71) (13,732)

GAO Audit Reimbursement Pursuant to P.L. 110-323 10,000 10,000

Efficiencies/Savings ($90,918) ($27,207) ($118,125)

Increase e-File Savings (8,227) (133) (8,360)

Non-Recur Savings (27,074) (27,074)

Non-Recur Stimulus Savings (67,900) (67,900)

Non-Recur FY08 Reduction Adjustment / Correspondence Inventory (13,439) (13,439)

Non-Recur Pension Plan (1,352) (1,352)

 Reinvestment $2,025 $306 $2,331

Submission Processing Consolidation (Andover) 2,025 306 2,331

Subtotal, FY 2010 Changes to the Base ($28,698) $133,815 $34,159 $1,153 $106 $140,535

Total FY 2010 Base $2,264,302 $5,251,082 $3,901,170 $231,067 $15,512 $11,663,133

Program Changes

Program Increases

Enforcement Initiatives $5,528 $252,918 $73,714 $332,160

Reduce the Tax Gap Attributable to International Activities $3,124 $104,113 $20,827 128,064

Improve Reporting Compliance of SB/SE Taxpayers 267 75,114 18,834 94,215

Expand Document Matching for Business Taxpayers 1,425 17,955 6,857 26,237

Address Nonfiling/Underpayment and Collection Coverage 712 55,736 27,196 83,644

Infrastructure Initiatives 108,100 108,100

Address IT Security and Material Weakness 90,000 90,000

Implement Return Review Program (RRP) 18,100 18,100

Business Systems Modernization Initiative 22,607 22,607

Subtotal, FY 2010 Program Changes $5,528 $252,918 $181,814 $22,607 $462,867

Total FY 2010 President's Budget Request $2,269,830 $5,504,000 $4,082,984 $253,674 $15,512 $12,126,000

Department of the Treasury - Budget in Brief FY 2010 Page 58
FY 2010 Budget Adjustments 

The IRS funding increase for FY 2010 is 

$603,402,000, which includes $256,329,000 

for maintaining current levels; a net decrease 

of $115,794,000 from efficiency/savings and 

reinvestments; and a program increase of 

$462,867,000 to strengthen enforcement, 

address IT security needs and deploy 

information technology systems. These 

investments fund increased front-line 

enforcement efforts. By FY 2012, these 

investments are projected to increase annual 

enforcement revenue by $2.0 billion. 

The budget request supports these activities by 

proposing: 

• $332,160,000 to target the tax gap by 

addressing underreporting of tax 

associated with complex international 

activities; expanding enforcement efforts 

on noncompliance among business and 

high-income taxpayers; and minimizing 

revenue loss by increasing document 

matching efforts; 

• $108,100,000 to address critical IT 

operational and security infrastructure 

needs; and 

• $22,607,000 to accelerate efforts to 

modernize the core taxpayer account 

database. 

FY 2009 Enacted 

The FY 2009 enacted level for the IRS is 

$11,522,598,000, supporting an estimated 

94,209 FTE. 

Maintaining Current Levels 

Adjustments Necessary to Maintain 

Current Levels +$260,061,000 / 0 FTE 

Funds are requested for: FY 2010 cost of the 

January 2009 pay increase of $80,054,000, 

the proposed January 2010 pay raise of 

$148,894,000, and non-labor related items 

such as contracts, travel, supplies, equipment, 

and GSA rent adjustments of $31,113,000. 

Government-wide Reduction for 

Productivity Improvements -$13,732,000 / 

0 FTE The IRS continues to focus on 

improving the efficiency of its operations 

through a disciplined process of productivity 

improvement. Note that the IRS outlines 

additional efficiency savings in the next 

section. 

GAO Audit Reimbursement Pursuant to 

Public Law 110-323 +$10,000,000 / 0 FTE 

This adjustment will provide funds up to 

$10 million to reimburse the Government 

Accountability Office (GAO) for the audit of 

the IRS annual financial statements. The IRS 

must pay this cost pursuant to Public 

Law 110-323. In prior years, GAO conducted 

the financial statement audit for which it did 

not receive reimbursement. 

Efficiency Savings 

Increase e-File Savings -$8,360,000 / 

-182 FTE This decrease is a result of savings 

from increased electronic filing (e-File), 

which is projected to lead to 4.6 million fewer 

returns filed on paper (2.9 million individual 

and 1.7 million business) in FY 2010. This is 

projected to result in a savings of 182 FTE in 

submission processing. 

Non-Recur Savings -$27,074,000 / 0 FTE 

This is the net reduction of one-time costs 

associated with the IRS FY 2009 enforcement 

initiatives. 

Non-Recur Stimulus Savings -$67,900,000 

/ -1,322 FTE One-time resources were 

provided in FY 2009 to meet the requirements 

of the Economic Stimulus Act of 2008 (Public 

Law 110-185). 

Department of the Treasury - Budget in Brief FY 2010 Page 59
Non-Recur FY 2009 Reduction Adjustment/ 

Correspondence Inventory -$13,439,000 /

0 FTE One-time resources were provided in 

FY 2009 to handle the increased 

adjustment/correspondence workload that 

resulted from diverting staff from paper 

correspondence to telephone service to meet 

the requirements of the Economic Stimulus 

Act of 2008 (Public Law 110-185). 

Non-Recur Pension Plan Form Processing 

-$1,352,000 / 0 FTE This is a decrease 

resulting from the funding of the one-time cost 

in FY 2009 to test the IRS ERISA (Employee 

Retirement Income Security Act of 1974) 

Residual Solution (IERS) system. This 

system will process the electronic Form 5500, 

Annual Return/Report of Employee Benefit 

Plan from the new Department of Labor 

ERISA Filing Acceptance system and the 

paper Form 5500EZ, Annual Return of OneParticipant (Owners and Their Spouses) 

Retirement. 

Reinvestment 

Submission Processing Consolidation 

(Andover) +$2,331,000 / 0 FTE Increased 

use of electronic filing options has led to 

consolidation of the individual return 

processing sites. Increased e-File savings will 

be reinvested to fund one-time severance pay 

costs for the ramp down of the Andover 

submissions processing site. As the Andover 

consolidation approaches, the IRS will 

continue to assist employees in finding 

employment either in or outside the IRS. 

Program Increases 

Reduce the Tax Gap Attributable to 

International Activities +$128,064,000 / 

+784 FTE The IRS plans a multi-year 

investment, beginning in FY 2010, to deal 

more effectively with increasing international 

tax activities of individual and business 

taxpayers. 

This effort will address the underreporting of 

tax associated with international transactions 

as well as domestic taxpayers involved with 

offshore activities. It will also expand the IRS 

presence in the tax-exempt and governmental 

sectors and confront international tax evasion 

schemes. 

This initiative will increase examinations of 

additional international issues of complex 

international structures involving tiered passthrough entities and cross-border transactions 

by a projected 5,357; close an estimated 

additional 1,057 related corporate and 

individual returns; increase the number of 

additional examinations of individual and 

small business returns with offshore activity 

by an estimated 1,145; and resolve 

approximately 18,362 additional collection 

cases. These additional activities will 

generate $736.6 million in additional 

enforcement revenue once the new hires reach 

full potential in FY 2012. 

Improve Reporting Compliance of Small 

Business and High Income Taxpayers 

+$94,215,000 / +755 FTE This initiative 

will improve reporting compliance by 

increasing examinations of business and highincome returns and exams involving 

flow-through entities by 47,400; audits 

targeting employment, excise, and estate and 

gift taxes by 6,350; and investigations of 

business non-filers by 183,000. This request 

will generate $567.2 million in additional 

enforcement revenue once new hires reach full 

potential in FY 2012. 

Department of the Treasury - Budget in Brief FY 2010 Page 60
Expand Document Matching for Business 

Taxpayers +$26,237,000 / +300 FTE This 

initiative will increase the coverage of the 

document matching program to reduce the 

number of business taxpayers who misreport 

their income. This request will generate 

$386.5 million in additional revenue once new 

hires reach full potential in FY 2012. 

Address Nonfiling/Underpayment and 

Collection Coverage +$83,644,000 / 

+491 FTE With expanded enforcement 

efforts in recent years, the IRS must invest in 

improving its collection operations to ensure 

appropriate overall balance and coverage. 

This initiative will generate $359.4 million in 

additional revenue once new hires reach full 

potential in FY 2012. In addition, this 

initiative will fund the rent, furniture, 

telecommunication, and IT costs to build two 

new Automated Collection System (ACS) 

sites. 

Return on Investment for Enforcement Initiatives

Dollars in Millions

First Year (FY 2010) Full Performance (FY 2012)

FY 2010 Enforcement Investment Cost Revenue ROI Cost Revenue ROI

Direct Revenue Producing Initiatives $332.1 $611.1 1.8 $262.8 $2,049.7 7.8

Reduce the Tax Gap Attributable to International Activities 128.1 93.8 0.7 103.4 736.6 7.1

Improve Reporting Compliance of SB/SE Taxpayers 94.2 159.6 1.7 72.6 567.2 7.8

Expand Document Matching for Business Taxpayers 26.2 191.8 7.3 22.8 386.5 17.0

Address Nonfiling/Underpayment and Collection Coverage 83.6 165.9 2.0 64.0 359.4 5.6

Address IT Security and Material 

Weakness 

+$90,000,000 / +36 FTE Improving IT 

security is necessary to ensure the integrity of 

the tax system and maintain taxpayer 

confidence. This initiative will allow the IRS 

to enhance enterprise security risk 

management; harden software applications 

and network infrastructure security; improve 

security compliance monitoring and reporting; 

and provide an enterprise solution to deploy 

end-to-end audit log collection. 

Implement Return Review Program (RRP) 

+$18,100,000 / +10 FTE In FY 2008 the 

Electronic Fraud Detection (EFDS) System 

stopped $1.4 billion in erroneous refunds. This 

initiative will complete modernization of the 

IRS fraudulent refund detection systems. It 

will deliver an integrated and unified RRP 

system that will enhance IRS capabilities to 

detect, resolve, and prevent criminal and civil 

tax refund and abuse. 

Business System Modernization (BSM) 

+$22,607,000 / 0 FTE This initiative will 

provide funding for the continued 

modernization of the core taxpayer account 

database. This effort is a critical underpinning 

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. 

Department of the Treasury - Budget in Brief FY 2010 Page 61
Explanation of Budget Activities 

Enforcement 

The FY 2010 President’s Budget request is 

$5,504,000,000 in direct appropriations and an 

estimated $60,797,000 from reimbursable 

programs, and an estimated $7,800,000 from 

user fees, for a total operating level of 

$5,572,597,000. The direct appropriations 

level is an increase of 7.6 percent from the 

FY 2009 enacted level and includes enhanced 

tax enforcement activities funded by an 

allocation adjustment. This appropriation 

funds the following budget activities. 

Investigations ($637,694,000 from direct 

appropriations and an estimated $51,553,000 

from reimbursable programs) This budget 

activity funds the criminal investigations 

programs that explore potential criminal 

violations of the internal revenue tax laws, 

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 also includes investigation and prosecution 

of tax and money laundering violations 

associated with narcotics organizations. 

Exam and Collections ($4,706,350 from 

direct appropriations, an estimated 

$8,783,000 from reimbursable programs, and 

an estimated $7,800,000 from user fees) This 

budget activity funds programs that enforce 

the tax laws and compliance through 

examination and collection programs that 

ensure proper payment and tax reporting. The 

budget activity also supports appeals and 

litigation activities associated with exam and 

collection. 

Regulatory ($159,956,000 from direct 

appropriations and an estimated $461,000 

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. 

Taxpayer Services 

The FY 2010 President’s Budget request is 

$2,269,830,000 in direct appropriations, an 

estimated $39,000,000 from reimbursable 

programs, and an estimated $127,000,000 

from user fees, for a total operating level of 

$2,435,830,000. The direct appropriations 

level is a reduction of 1.0 percent from the 

FY 2009 enacted level though it does not 

represent a program reduction due to nonrecurrent activities and savings. This 

appropriation funds the following budget 

activities. 

Pre-Filing Taxpayer Assistance and 

Education ($676,063,000 from direct 

appropriations, an estimated $819,000 from 

reimbursable programs, and an estimated 

$18,700,000 from user fees) 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 ($1,593,767,000 

from direct appropriations, an estimated 

Department of the Treasury - Budget in Brief FY 2010 Page 62
$38,181,000 from reimbursable programs, 

and an estimated $108,300,000 from user 

fees) This budget activity funds programs that 

provide filing and account services to 

taxpayers, process paper and electronically 

submitted 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. 

Operations Support 

The FY 2010 President’s Budget request is 

$4,082,984,000 in direct appropriations, an 

estimated $47,304,000 from reimbursable 

programs, and an estimated $32,900,000 from 

user fees, for a total operating level of 

$4,163,188,000. The direct appropriation 

level is an increase of 5.6 percent from the 

FY 2009 enacted level and includes dedicated 

support funding for enhanced enforcement 

activities. This appropriation funds the 

following budget activities. 

Infrastructure ($900,852,000 from direct 

appropriations, an estimated $155,000 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-Automated Data 

Processing (ADP) equipment. 

Shared Services and Support 

($1,296,629,000 from direct appropriations 

and an estimated $32,228,000 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 ($1,885,503,000 from 

direct appropriations, an estimated 

$14,921,000 from reimbursable programs, 

and an estimated $16,800,000 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 2010 President’s Budget request is 

$253,674,000 in direct appropriation. This is 

an increase of 10.3 percent from the FY 2009 

enacted level. This appropriation funds the 

following budget activity. 

BSM ($253,674,000 from direct 

appropriations) This budget activity funds 

the planning and capital asset acquisition of 

information technology (IT) to continued 

modernization of the core taxpayer account 

database. This effort is a critical underpinning 

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. BSM labor (salaries and 

expense dollars) and related contract costs 

also are funded. 

Health Insurance Tax Credit 

Administration (HITCA) 

Department of the Treasury - Budget in Brief FY 2010 Page 63
The FY 2010 President’s Budget request is 

$15,512,000 in direct appropriations. This is 

an increase of 0.7 percent from the FY 2009 

enacted level. This appropriation funds the 

following budget activity. 

HITCA ($15,512,000 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 2010 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 $11 billion over the next ten years. 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: 

• Require information reporting on 

payments to corporations; 

• Require a certified taxpayer identification 

number (TIN) from contractors; 

• Require increased information reporting 

on certain government payments; and 

• Increase information return penalties. 

Improve compliance by businesses – 

Improving compliance by businesses of all 

sizes is important. Specific proposals to 

improve compliance by businesses would: 

• Require electronic filing by certain large 

organizations; and 

• Implement standards clarifying when 

employee leasing companies can be held 

liable for their clients’ federal employment 

taxes. 

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; 

• Expand electronic filing requirements for 

tax return preparers; 

• Repeal the requirement of a partial 

payment with an application for an offerin-compromise; and 

• Allow assessment of criminal restitution as 

tax. 

Expand penalties – Penalties play an 

important role in discouraging intentional noncompliance. Specific proposals 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 

Department of the Treasury - Budget in Brief FY 2010 Page 64
The Administration has put forward additional 

proposals relating to IRS administrative 

reforms. These proposals would: 

• Apply the Federal Payment Levy Program 

to contractors before providing Collection 

Due Process; and 

• Clarify that vendor levy on “goods and 

• Require information reporting on expense services” would not exclude “property.” 

payments relating to rental property; 

• Improve the foreign trust reporting 

penalty; 

IRS Performance by Programs

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Programs Performance Measure Target Actual Actual Actual Target Target Met?

Customer Contacts Resolved per Staff Year - E 7,414 7,648 12,634 Yes 10,386 8,919

Taxpayer Service Customer Accuracy - Tax Law Phones (%) - Ot 90.9% 91.2% 91.2% Yes 91.0% 91.2%

Percent of Individual Returns Processed Electronically (%) - Oe (L) 54.1% 57.1% 57.6% No 64.0% 67.3%

Examination Efficiency - Individual (1040) - E (L) 128 137 138 Yes 132 130

Enforcement Automated Collection System Accuracy (%) - Oe 91.0% 92.9% 95.3% Yes 92.0% 93.5%

AUR Efficiency E (L) 1,832 1,956 1,982 Yes 1,855 1,894

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

Description of Performance 

In FY 2008 the IRS continued to provide 

excellent service to taxpayers and enforced 

the tax laws in a balanced manner. 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 and close 

the tax gap. IRS enforcement activities, 

such as examination and collection, 

target elements of the tax gap, remained 

a high priority in FY 2008, and will 

continue to be a high priority in the 

future. 

In FY 2008 the IRS collected $56.4 

billion in enforcement revenue. 

• Increased high-income taxpayer 

audits almost 16 percent; 

• Increased small business audits 

In FY 2008, IRS enforcement 3 percent; 

performance improved over FY 2007 in 

the following key areas: • Increased tax-exempt and 

government entities compliance 

contacts 6 percent; 

Department of the Treasury - Budget in Brief FY 2010 Page 65

IRS Enforcement Revenue (In Billions)

$70

$59.2

$60 $56.4

$47.3 $48.7 $50 $43.1

$37.6 $40 $34.1

$30

$20

$10

$0

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08
• Increased Automated Underreporter 

(AUR) contact closures by almost 

4 percent; and dollars collected 

through AUR and information return 

processing by 22 percent; and 

• Increased collection case closures 

1.4 percent. 

The IRS continued to investigate 

vigorously egregious tax, money 

laundering, and other financial crimes 

that adversely affect tax administration. 

Performance levels for the criminal 

investigation program remained high in 

FY 2008 with 4,044 completed criminal 

investigations and 2,144 convictions. 

Maintaining a strong enforcement 

presence in the tax-exempt sector is 

important to ensure that charitable 

organizations are not used for noncharitable or illegal purposes. In FY 

2008, the IRS increased tax-exempt and 

government entities compliance contacts 

6 percent over FY 2007 levels. 

Research allows the IRS to target 

specific areas of noncompliance to 

improve voluntary compliance and 

allocate resources more effectively to 

reduce the tax gap. Improved research 

data also refine the workload selection 

models to reduce audits of compliant 

taxpayers and ultimately help the IRS 

achieve high rates of return from its 

enforcement programs. Current 

National Research Program (NRP) 

efforts include analyzing individual 

income tax returns for Tax Years 2006, 

2007, and 2008. In addition, an 

employment tax reporting compliance 

study is in the planning stages. Results 

from these studies will be used to 

develop additional approaches to 

addressing the tax gap. 

Taxpayer Service 

In 2008, the IRS served taxpayers through 

multiple channels during the tax filing 

season while also delivering $94.3 billion in 

economic stimulus payments to 116.2 

million taxpayers and successfully 

implementing Alternative Minimum Tax 

legislation enacted late in 2007. Demand for 

telephone services was 

Tot a l S yst e m Demand ( I n M i l l i ons of Ca l l s) 80

60

40

20

0

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

FY 2005 FY 2006 FY 2007 FY 2008 

unprecedented in 2008, and as a result, the 

overall telephone level of service was 53 

percent, well below the target of 82 percent. 

In FY 2008, there were nearly 350 million 

visits to IRS.gov, up over 61 percent from 

215 million in FY 2007. Taxpayers visited 

the website to obtain information on the 

economic stimulus package, determine if 

they qualify for the Earned Income Tax 

Credit (EITC), and track the status of their 

returns using the “Where’s My Refund?” 

feature. The IRS answered 92.4 million calls 

and served over 6.9 million taxpayers at 

401 Taxpayer Assistance Centers. Taxpayer 

service improvements are reflected in 

increases in IRS Customer Satisfaction 

scores as measured by the independent 

American Customer Satisfaction Index 

showing improvement from 53 percent in 

1998 to 68 percent in 2008. For the 

thirteenth year in a row, the number of 

individual returns that were filed 

electronically, excluding taxpayers who 

filed solely to claim an economic stimulus 

payment, increased, with over 63 percent of 

Department of the Treasury - Budget in Brief FY 2010 Page 66
all individual income tax returns e-filed in 

FY 2008. 

FY 2009 continues to bring significant 

challenges to IRS service programs. 

Workload remains high from taxpayers 

seeking assistance in resolving issues from 

the Economic Stimulus Act of 2008 (Public 

Law 110-185). At the same time, the IRS is 

implementing the ARRA tax provisions. 

Business System Modernization 

IRS modernization efforts continued to 

focus on its core tax administration 

systems designed to provide more 

sophisticated tools to taxpayers and the 

IRS employees. 

The following highlights the IRS efforts 

in FY 2008 in advancing these core 

systems: 

• CADE– The 2008 CADE release was 

delivered on time for the filing 

season, and over 30.6 million 

taxpayers were processed using a 

modernized account database, a 

substantial increase from 

11.2 million in 2007. 

• Modernized e-File (MeF) – In 2008, 

MeF accepted over 3.7 million 

returns, a 55 percent increase over 

the same period in 2007; and 

• Account Management Services 

(AMS) – The 2008 releases of AMS 

delivered the capability to update 

account data on a daily cycle to over 

33,000 IRS customer service 

representatives and provided 

improved customer support with new 

inventory and workflow 

functionalities. 

Human Capital 

In late FY 2008, the IRS Commissioner 

established a Workforce of Tomorrow

task force to address recruitment and 

retention issues so that the IRS has the 

necessary leadership and workforce to 

address future challenges. 

The IRS considers employee 

engagement fundamental to the overall 

success of the organization and believes 

that employee engagement is an ongoing 

process. The IRS conducts an annual 

survey to assess the level of engagement 

of employees. Overall satisfaction 

showed steady improvement from a 

score of 3.48 in 2002 to a score of 3.79 

in 2008, on a scale of 1 to 5, with 5 

being the most satisfied. 

IRS job satisfaction is higher than most 

other federal agencies according to the 

Office of Personnel Management’s 

Federal Human Capital Survey. 

Department of the Treasury - Budget in Brief FY 2010 Page 67