Internal Revenue Service 

Mission Statement 

Provide America’s taxpayers top-quality service by helping them understand and meet 

their tax responsibilities and by applying the tax law with integrity and fairness to all. 

Program Summary by Appropriations Account 

Dollars in Thousands 

Appropriations FY 2008 FY 2009 FY 2010

Internal Revenue Service Enacted1 ARRA Enacted2 Request $ Change % Change 

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

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

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

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%

Total Appropriated Resources $11,094,519 $80,000 $11,522,598 $12,126,000 $603,402 5.24%

FTE 92,415 94,209 95,081

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, Administration Expenses account, funded in the Treasury Departmental Offices ( $123M).

FY 2010 Priorities

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 supports and 

protects the trillions in revenue from hundreds of millions of taxpayers that already come 

into the Treasury every year. The enforcement agenda vigorously pursues those who 

evade their responsibility to pay the taxes they owe. 

 

In its FY 2010 request, the IRS requests additional funding for its compliance and 

information technology programs: 

• Enforcement – Reducing the tax gap by investing in a strong compliance 

program and addressing international tax evasion 

• Information Technology – Upgrading IRS information technology systems to 

streamline tax administration, protect taxpayer information, and replace aging 

infrastructure 
IRS-i 

Table of Contents 

Section 1 – Purpose........................................................................................................... 3

1A – Description of Bureau Vision and Priorities...................................................... 3

1B – Program History and Future Outlook ............................................................. 10

Section 2 – Budget Adjustments – Internal Revenue Service..................................... 13

Program Summary by Appropriations Account and Budget Activity .................. 13

2.1 – Budget Adjustments Tables .............................................................................. 14

2A – Budget Increases and Decreases Description .................................................. 15

Program Increases ...................................................................................................... 19

Reduce the Tax Gap Attributable to International Activities................................ 19

Improve Reporting Compliance of Small Business/Self Employed (SB/SE) 

Taxpayers.............................................................................................................. 29

Expand Document Matching for Business Taxpayers .......................................... 33

Address Nonfiling/Underpayment and Collection Coverage ............................... 35

Address IT Security and Material Weakness ........................................................ 40

Implement Return Review Program (RRP)........................................................... 48

Continue Development of Business Systems Modernization ................................ 49

2.2 – Operating Levels Table ..................................................................................... 51

2.3 – Appropriation Detail Table............................................................................... 52

2B – Appropriation Language and Explanation of Changes.................................. 53

2C – Legislative Proposals.......................................................................................... 57

Section 3 – Budget and Performance Plan ................................................................... 59

Taxpayer Services ....................................................................................................... 59

2.1 – Budget Adjustments Table............................................................................... 59 

2.2 – Operating Levels Table.................................................................................... 60 

2.3 – Appropriation Detail Table.............................................................................. 61 

3A – Pre-Filing Taxpayer Assistance and Education ............................................... 61 

3.2.1 – Budget and Performance Plan....................................................................... 62 

3A – Filing and Account Services ............................................................................ 64 

3.2.2 – Budget and Performance Plan....................................................................... 65 

Enforcement ................................................................................................................ 67

2.1 – Budget Adjustments Table............................................................................... 67 

2.2 – Operating Levels Table.................................................................................... 68 

2.3 – Appropriation Detail Table.............................................................................. 69 

3A – Investigations ................................................................................................... 69 

3.2.3 – Budget and Performance Plan....................................................................... 70 

3A – Exam and Collections ...................................................................................... 71 

3.2.4 – Budget and Performance Plan....................................................................... 73 

3A – Regulatory........................................................................................................ 74 

3.2.5 – Budget and Performance Plan....................................................................... 75 
IRS-ii 

Operations Support .................................................................................................... 76

2.1 – Budget Adjustments Table............................................................................... 77 

2.2 – Operating Levels Table.................................................................................... 78 

2.3 – Appropriation Detail Table.............................................................................. 79 

3A – Infrastructure.................................................................................................... 79 

3.2.6 – Budget and Performance Plan....................................................................... 80 

3A – Shared Services and Support............................................................................ 80 

3.2.7 – Budget and Performance Plan....................................................................... 82 

3A – Information Services........................................................................................ 83 

3.2.8 – Budget and Performance Plan....................................................................... 86 

Business Systems Modernization............................................................................... 88

2.1 – Budget Adjustments Table............................................................................... 88 

2.2 – Operating Levels Table.................................................................................... 89 

2.3 – Appropriation Detail Table.............................................................................. 90 

3A – Business Systems Modernization..................................................................... 90 

3.2.9 – Budget and Performance Plan....................................................................... 97 

Health Insurance Tax Credit Administration.......................................................... 98

2.1 – Budget Adjustments Table............................................................................... 98 

2.2 – Operating Levels Table.................................................................................... 99 

2.3 – Appropriation Detail Table............................................................................ 100 

3A – Health Insurance Tax Credit Administration................................................. 100 

3.2.10 – Budget and Performance Plan................................................................... 101 

Section 4 – Supporting Materials ................................................................................ 103

4A – Human Capital Strategy.................................................................................. 103

4B – Information Technology (IT) Strategy........................................................... 106

4.1 – Summary of IT Resources Table.................................................................... 108

4.2 – Program Assessment........................................................................................ 110

4.3 – IRS Performance Measure Table................................................................... 124

4.4 – Cost of IRS Operating Activities .................................................................... 125

4.5 – Summary of IRS FY 2010 Budget Request ................................................... 126
IRS-3 

Section 1 – Purpose 

1A – Description of Bureau Vision and Priorities 

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: 

To improve service to 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 tax-exempt 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. 

IRS Strategic Goals 

Goal 1 Improve Service to Make Voluntary Compliance Easier 

Goal 2 Enforce the Law to Ensure That Everyone Meets Their 

Obligations to Pay Taxes 
IRS-4 

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. 

FY 2010 Budget Request

The FY 2010 President’s Budget Request for the IRS is $12,126 million, which is 

$603 million or an increase of 5.2 percent over the FY 2009 enacted level. The funding 

request for Taxpayer Services is $2,270 million; Enforcement is $5,504 million; 

Operations Support is $4,083 million; Business Systems Modernization (BSM) is 

$254 million; and Health Insurance Tax Credit Administration (HITCA) is $16 million. 

The FY 2010 Budget Request funds new investments to improve compliance through 

enforcement, replace core technology, and improve security and performance through 

enhanced IT infrastructure. 

The IRS $603 million increase consists of: 

• $140 million for changes to the base: 

o $270 million for the pay raise, inflation, and legislated cost increase; 

o -$14 million for the government-wide reduction for productivity 

improvements 

o -$118 million for savings and non-recurrent activities; and 

o $2 million for reinvestments and other base adjustments. 

• $463 million for program increases: 

o $332 million to reduce the tax gap by investing in a strong compliance 

program; 

o $108 million to address IT operational and security risks; and 

o $23 million to continue development of modernized IT systems. 

The IRS requests $332 million to continue reducing the tax gap by investing in a strong 

compliance program. The FY 2010 initiatives will allow the IRS to address 

underreporting of income associated with international activities and to expand 

enforcement efforts on noncompliance among business and high-income taxpayers. 

These enforcement investments will bring in $2,050 million in new enforcement revenue 

each year beginning in FY 2012 once new hires are fully trained. 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 IRS requests $108 million to improve security and performance through investments 

in IT infrastructure. The environment and expectations surrounding taxpayer data 

privacy and information technology security have changed dramatically. The IRS, as a 
IRS-5 

custodian of significant amounts of taxpayer data, requires funding to ensure the integrity 

and security of IRS systems. 

The IRS requests an additional $23 million 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. 

Reducing the Tax Gap

In FY 2008, the IRS collected more than $2.7 trillion in taxes (gross receipts before tax 

refunds), over 96 percent of total federal government receipts. Recent investments in IRS 

enforcement programs have yielded significant increases in enforcement revenue. 

Enforcement revenue has risen from $33.8 billion in FY 2001 to over $56.4 billion in 

FY 2008, an increase of 67 percent, for a total IRS-wide ROI of 5.2 to 1. This number 

reflects only the direct revenue collected and does not take into account the deterrent 

effects of IRS enforcement programs such as Criminal Investigation. 

In 2006, the IRS released updated results of its first study in two decades of the 

difference between taxes owed and taxes actually paid on a timely basis – the “tax gap.” 

The IRS estimated that taxpayers initially underpaid by $345 billion in 2001 see “Tax 

Gap Map for Tax Year 2001” below. This equates to a voluntary compliance rate of 

almost 84 percent. Late payments and IRS enforcement action reduced this to a net tax 

gap of $290 billion. The three components of the tax gap are: 

• Underreporting – Not reporting one’s full tax liability on a timely filed return; 

• Nonfiling – Not filing required returns on time; and 

• Underpayment – Not timely paying the full amount of tax reporting on a timely 

return. 
IRS-6 

Underreporting tax liability comprises 82 percent of the gross tax gap ($285 billion). The 

remainder is almost evenly divided between nonfiling (8 percent) and underpaying 

(10 percent). The IRS remains committed to 

finding ways to increase compliance and 

reduce the tax gap, while minimizing the 

burden on the vast majority of taxpayers 

who pay their taxes accurately and on time. 

Noncompliance may not be deliberate and 

can stem from a wide range of causes, 

including lack of knowledge, confusion, 

poor recordkeeping, differing legal 

interpretations, unexpected personal 

emergencies, and temporary cash flow 

problems. Accordingly, helping taxpayers 

understand and fulfill their obligations under the tax law is a critical part of addressing 

the tax gap. However, some 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. 

TAX GAP MAP for Tax Year 2001 (in $ Billions)

Actual Amounts 

Reasonable Estimates

Weaker Estimates

* IRS will continue to collect late payments 

for TY01 for years to come. This category 

includes tax paid late by taxpayers 

without IRS enforcement action. For 

comparison, $24.3B of tax was collected 

solely through enforcement in FY2001.

† Updated using Census tabulations

# No estimates available

Certainty of the Estimates

Estimates in Bold Boxes 

Have Been Updated 

Based on Detailed TY01 

NRP Results

Nonfiling †

$27

Individual

Income Tax †

$25

Corporation

Income Tax

#

Employment

Tax

#

Excise

Tax

#

Estate

Tax

$2

Underpayment

$33.3

Individual

Income Tax

$23.4

Corporation

Income Tax

$2.3

Employment

Tax

$5.0

Estate

Tax

$2.1

Excise

Tax

$0.5

Tax Paid Voluntarily & Timely

$1,767

(Voluntary Compliance Rate: VCR = 83.7%)

Gross Tax Gap: $345

(Noncompliance Rate: NCR = 16.3%)

Total Tax

Liability

$2,112

FICA

$14

Unemployment

Tax

$1 

Individual

Income Tax

$197

Non-Business

Income

$30.6

Business

Income

$65.3 

Corporation

Income Tax

$30

Estate

Tax

$4

Excise

Tax

#

Business

Income

$109

Large 

Corporations 

(Over $10M)

$25

Self-Employment

Tax

$39

Non-Business

Income

$56

Small 

Corporations

(Under $10M)

$5

Credits

$17

Adjustments,

Deductions,

Exemptions

$15

Underreporting

$285

Employment

Tax

$54

Enforced

& Other Late 

Payments

$55 *

Net Tax Gap

(Tax Not Collected)

$290

TAX GAP MAP for Tax Year 2001 (in $ Billions)

Actual Amounts 

Reasonable Estimates

Weaker Estimates

* IRS will continue to collect late payments 

for TY01 for years to come. This category 

includes tax paid late by taxpayers 

without IRS enforcement action. For 

comparison, $24.3B of tax was collected 

solely through enforcement in FY2001.

† Updated using Census tabulations

# No estimates available

Certainty of the Estimates

Actual Amounts 

Reasonable Estimates

Weaker Estimates

* IRS will continue to collect late payments 

for TY01 for years to come. This category 

includes tax paid late by taxpayers 

without IRS enforcement action. For 

comparison, $24.3B of tax was collected 

solely through enforcement in FY2001.

† Updated using Census tabulations

# No estimates available

Actual Amounts 

Reasonable Estimates

Weaker Estimates

Certainty of the Estimates

Estimates in Bold Boxes 

Have Been Updated 

Based on Detailed TY01 

NRP Results

Nonfiling †

$27

Individual

Income Tax †

$25

Corporation

Income Tax

#

Employment

Tax

#

Excise

Tax

#

Estate

Tax

$2

Nonfiling †

$27

Individual

Income Tax †

$25

Corporation

Income Tax

#

Employment

Tax

#

Excise

Tax

#

Estate

Tax

$2

Underpayment

$33.3

Individual

Income Tax

$23.4

Corporation

Income Tax

$2.3

Employment

Tax

$5.0

Estate

Tax

$2.1

Excise

Tax

$0.5

Underpayment

$33.3

Individual

Income Tax

$23.4

Corporation

Income Tax

$2.3

Employment

Tax

$5.0

Estate

Tax

$2.1

Excise

Tax

$0.5

Tax Paid Voluntarily & Timely

$1,767

(Voluntary Compliance Rate: VCR = 83.7%)

Gross Tax Gap: $345

(Noncompliance Rate: NCR = 16.3%)

Total Tax

Liability

$2,112

FICA

$14

Unemployment

Tax

$1 

Individual

Income Tax

$197

Non-Business

Income

$30.6

Business

Income

$65.3 

Corporation

Income Tax

$30

Estate

Tax

$4

Excise

Tax

#

Business

Income

$109

Large 

Corporations 

(Over $10M)

$25

Self-Employment

Tax

$39

Non-Business

Income

$56

Small 

Corporations

(Under $10M)

$5

Credits

$17

Adjustments,

Deductions,

Exemptions

$15

Underreporting

$285

Employment

Tax

$54

FICA

$14

Unemployment

Tax

$1 

Individual

Income Tax

$197

Non-Business

Income

$30.6

Business

Income

$65.3 

Corporation

Income Tax

$30

Estate

Tax

$4

Excise

Tax

#

Business

Income

$109

Large 

Corporations 

(Over $10M)

$25

Self-Employment

Tax

$39

Non-Business

Income

$56

Small 

Corporations

(Under $10M)

$5

Credits

$17

Adjustments,

Deductions,

Exemptions

$15

Underreporting

$285

Employment

Tax

$54

Enforced

& Other Late 

Payments

$55 *

Net Tax Gap

(Tax Not Collected)

$290

Enforced

& Other Late 

Payments

$55 *

Net Tax Gap

(Tax Not Collected)

$290

Enforced

& Other Late 

Payments

$55 *

Net Tax Gap

(Tax Not Collected)

$290

Nonfiling

8%

Underpayment

10%

Underreporting

82%
IRS-7 

Taxpayer Service and Enforcement Programs 

Although resources have remained flat (after inflation), the IRS has consistently 

improved customer satisfaction in its service programs and increased the efficiency of its 

enforcement program. 

65 30

59.2 28 60 56.4

26 55

24 48.7 50 47.3

22

)s

45 43.1 n

ions)

20

oilli B

ll ($ Bi 40 37.6 $

18

 (NO

EU

34.1

IAT

35 16

VEN

RIOP

RE

14 30

PR AP

10.9 10.6 10.6 12 10.2 25 10.2 9.8 9.5 10

20 9.5 9.6 9.7 9.5 9.5 9.3 9.3 8

15 6

10 4

FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Total Enforcement Revenue Appropriated Adjusted for Inflation

ROI 3.6 3.8 4.2 4.6 4.6 5.6 5.2

Enforcement Revenue and IRS Budget FY 2002 through FY 2008

(Dollars in Billions)

The IRS serves every individual, business, and nonprofit organization in the nation, and 

processes almost a quarter of a 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. 

Providing quality taxpayer service is especially important to help taxpayers avoid making 

unintentional errors. The IRS customer satisfaction scores continue to improve (see chart 

below). Assisting taxpayers with their tax questions before they file their returns 

prevents inadvertent noncompliance and reduces burdensome post-filing notices and 

other correspondence from the IRS. Accordingly, the IRS provides year-round assistance 

to millions of taxpayers through many sources, including outreach and education 

programs, issuance of tax forms and publications, rulings and regulations, toll-free call 

centers, the IRS.gov website, Taxpayer Assistance Centers (TAC), Volunteer Income Tax 

Assistance (VITA) sites, and Tax Counseling for the Elderly (TCE) sites. Many of these 

sites provide information in Spanish as well as English. 
IRS-8 

Percentage IRS Customer Satisfaction Scores from Individual Filers

100 American Customer Satisfaction Index (ACSI)

90

80

68 68

70 63 64 64 65 62 60

56 60 53 51

50

40

30

20

10

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

The IRS delivered Phase 1 of the Taxpayer Assistance Blueprint (TAB) Report to 

Congress in April 2006. Phase 1 defined the population that uses IRS services and 

identified leading practices, opportunities for improvement, and a plan for additional 

research. 

In April 2007, the IRS delivered Phase 2 of the TAB Report to Congress, which outlines 

a five-year strategic plan for taxpayer service that will help the IRS enhance the services 

delivered to taxpayers and partners. The TAB strategic plan includes performance 

measures, service improvement initiatives, and an implementation strategy for improving 

future service investment decisions. 

The TAB Report provides the future direction of IRS service delivery and identifies 

strategic challenges, including: 

• Accommodating complexity and changes to the tax code; 

• Responding to the need for additional data on the causes of noncompliance; 

• Expanding use of third parties; 

• Adapting to the scope and diversity of the taxpaying population; and 

• Keeping pace with technology and taxpayer expectations. 

Increased resources for IRS enforcement programs yield a positive return on investment 

(ROI). As shown in the table below, the proposed IRS FY 2010 enforcement initiatives 

will generate $2,050 million in additional annual enforcement revenue once the new hires 

reach full potential in FY 2012. 
IRS-9 

Return on Investment for IRS 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

In addition to direct revenue, IRS enforcement activities yield indirect revenue by 

deterring noncompliance. This effect is more difficult to measure, but it is estimated to 

be at least three times 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. 
IRS-10 

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 

1B – Program History and Future Outlook 

The IRS helps taxpayers understand and comply with federal income tax laws. Each 

year, IRS employees make millions of contacts with taxpayers and businesses. These 

contacts encourage and facilitate self-sufficiency for taxpayers in meeting their tax 

obligations. The IRS also enforces the tax laws to ensure that non-compliant taxpayers 

pay their fair share. Providing excellent service to taxpayers and enforcing the tax laws 

in a balanced manner continues to be the IRS main focus. FY 2008 performance 

confirms that the IRS is making steady gains in service to America’s taxpayers. 

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 unprecedented in 2008, as shown in the chart below, and 

therefore, the overall telephone level of service was 53 percent, 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 of 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 110-85). At the same time, the IRS is implementing 

the ARRA tax provisions 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.

 
IRS-11 

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 and 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. 

In FY 2008, the IRS improvements in 

enforcement performance resulted primarily 

from the focus on corrosive activities of 

corporations, high-income taxpayers, and 

other major violators of the tax code. As a 

result, in FY 2008 IRS performance 

improved over FY 2007 in the following key 

areas: 

• Increased high-income taxpayer audits almost 16 percent; 

• Increased small business audits 3 percent; 

• Increased tax-exempt and government entities compliance contacts 6 percent; 

• 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 vigorously investigate 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 non-charitable 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. 

IRS Enforcement Revenue (In Billions)

$70

$59.2

$60 $56.4

$48.7 $47.3 $50

$43.1

$40 $37.6

$34.1

$30

$20

$10

$0

FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08
IRS-12 

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. 

 
IRS-13 

Section 2 – Budget Adjustments – Internal Revenue Service 

The IRS Budget request for FY 2010 is $12,126,000,000 in direct appropriations and 

95,081 FTE. This is an increase of $603,402,000 or 5.2 percent, and 872 FTE, over the 

FY 2009 enacted level of $11,522,598,000 and 94,209 FTE. 

Program Summary by Appropriations Account and Budget Activity 

Dollars in Thousands 

Appropriations FY 2008 FY 2009 FY 2010

Internal Revenue Service 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%

Total Appropriated Resources $11,094,519 $80,000 $11,522,598 $12,126,000 $603,402 5.24%

Total FTE 92,415 94,209 95,081

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, Administration Expenses account, funded in the Treasury Departmental Offices ( $123M).
IRS-14 

 2.1 – Budget Adjustments Tables 

 Dollars in Thousands 

Internal Revenue Service 

FTE1 Amount

FY 2009 Enacted 94,209 $11,522,598

Changes to Base:

Maintaining Current Levels $256,329

Pay Annualization 80,054

Pay Inflation Adjustment 148,894

Non-Pay Inflation Adjustment 31,113

Government-wide Reduction for Productivity Improvements (13,732)

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

Efficiencies/Savings (1,504) ($118,125)

Increase e-File Savings (182) (8,360)

Non-Recur Savings (27,074)

Non-Recur Stimulus Savings (1,322) (67,900)

Non-Recur FY09 Reduction Adjustment/Correspondence Inventory (13,439)

Non-Recur Pension Plan (1,352)

Reinvestment $2,331

Submission Processing Consolidation (Andover) 2,331

Subtotal Changes to Base (1,504) $140,535

Total FY 2010 Base 92,705 $11,663,133

Program Changes:

Enforcement Initiatives 2,330 $332,160

Reduce the Tax Gap Attributable to International Activities 784 128,064

Improve Reporting Compliance of SB/SE Taxpayers 755 94,215

Expand Document Matching for Business Taxpayers 300 26,237

Address Nonfiling/Underpayment and Collection Coverage 491 83,644

Infrastructure Initiatives 46 $108,100

Address IT Security and Material Weakness 36 90,000

Implement Return Review Program (RRP) 10 18,100

Business Systems Modernization Initiative $22,607

Subtotal FY 2010 Program Changes 2,376 $462,867

Total FY 2010 President's Budget Request 95,081 $12,126,000 1 Includes Technical FTE adjustments made since February 2008.
IRS-15 

2A – Budget Increases and Decreases Description 

Treasury Strategic Goals and Outcome 

All of the IRS FY 2010 initiatives support the Treasury Strategic Goal of “Effectively 

Managed U.S. Government Finances” and the Treasury Strategic Outcome of “Revenue 

collected when due through a fair and uniform application of the law.” The table below 

shows the IRS Budget by strategic outcome. 

This table lists all FY 2010 resources by Strategic Goal, Objective and Outcome outlined 

in the FY 2007-2012 Treasury Strategic Plan. The Treasury Strategic Plan is a corporate 

level plan for the Department that provides a description of what the agency intends to 

accomplish over the next five years. 

Budget by Strategic Outcome 

Dollars in Thousands 

Treasury Strategic Outcome FY 2009 FY 2010 Percent

Enacted Request Change

Revenue collected when due through a fair and uniform application of the law 11,252,550 11,856,572 5.4%

Removed and reduced threats to national security from terrorism, proliferation of 

weapons of mass destruction, drug trafficking, and other criminal activity on the part of 270,048 269,428 -0.2%

rogue regimes, individuals, and their support networks

Total $11,522,598 $12,126,000 5.2%

Initiative Costing Methodology 

The IRS applies a variety of methodologies to cost its initiatives based on the type of 

initiative. Costs for initiatives that require labor funding are calculated by converting the 

workload to the number and type of staff (e.g. Revenue Agents, Revenue Officers, or 

Special Agents) needed to deliver targeted performance goals. Once the number of fulltime equivalents (FTE) and type of staff are determined, the cost of the FTE is estimated 

using a Unit Cost Rate (UCR) calculator, a tool for projecting FTE salary and non-salary 

support cost and/or savings. The UCR Calculator fully costs the salary, benefits, and 

support costs needed for each FTE. 
IRS-16 

Total Changes to Base +$140,535,000 / -1,504 FTE 

 Maintaining Current Levels (MCLs) +256,329/ 0 FTE 

Pay Adjustments and Inflation 

+$260,061,000 / 0 FTE

This request funds the estimated cost of pay and benefits increases and non-pay inflation. 

This amount includes: 

• $80,054,000 to fund annualization of the 3.9 percent January 2009 federal pay 

raise in FY 2010; 

• $148,894,000 to fund the assumed 2.0 percent January 2010 federal pay raise; and 

• $31,113,000 to fund the 1.0 percent FY 2010 non-pay inflation adjustment for 

items such as rent, utilities, communications, contracts, travel, supplies, and 

equipment. 

Government-wide Reduction for Productivity Improvements

-$13,732,000 / 0 FTE

The IRS continues to improve the efficiency of its taxpayer service and enforcement 

programs by identifying productivity improvements that will increase the effectiveness of 

the organization. 

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. 

Public Law 110-323 requires the IRS to pay this cost. In prior years, GAO conducted the 

financial statement audit for which it did not receive reimbursement. 

 

 Efficiencies and Savings -$118,125,000 / -1,504 FTE 

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, generating a savings of $8.4 million. Part of this savings will be 

reinvested to cover the costs of Submission Processing Consolidation (Andover). 

The IRS continues to strive to meet the Congressional goal of electronically receiving 

80 percent of all tax and information returns. By making technological advances and 

increasing e-filing marketing strategies, the IRS will move toward meeting its Strategic 

Goals. This includes expanding options for filing, payments, and communications. 
IRS-17 

Non-Recur Savings

-$27,074,000 / 0 FTE

This is the net of reductions of non-recurring, one-time costs associated with the IRS 

FY 2009 enforcement initiatives (e.g., ADP equipment and training). 

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). The IRS does not expect to need these funds 

in FY 2010. 

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). The IRS expects inventory levels to return to 

acceptable levels in FY 2010. 

Non-Recur Pension Plan

-$1,352,000 / 0 FTE 

This is a decrease resulting from the funding of the one-time, non-recurring 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 +$2,331,000 / 0 FTE 

Submission Processing Consolidation (Andover)

+$2,331,000 / 0 FTE

Increased use of e-filing options has driven continued efforts to reduce the number of 

sites that process individual returns. Resources of $2.3 million from Increase e-File 

Savings will be reinvested to fund one-time separation costs associated with the 

September 30, 2009 closure of the Andover submissions processing site ($2.0 million) 

and cover redistribution/disbursement of existing furniture and equipment in Andover 

($0.3 million). 

This reinvestment supports two IRS operational priorities – to improve returns processing 

efficiency and to implement planned submission processing strategies. Included in those 

strategies are the downsizing of IRS paper-based operations to meet the increase in 
IRS-18 

electronic submissions and the utilization of cost efficient methods to process the 

remaining paper workload. The ramp-down and consolidation of the Andover 

submissions processing site also will improve compliance by providing taxpayer services 

more efficiently and effectively, a key component of the tax gap strategy. 

As the Andover consolidation approaches, the IRS will continue to assist employees in 

finding employment either in or outside the organization. The IRS makes every effort 

possible to place affected employees in other positions; however, the expectation that 

some employees will separate through Reductions in Force, Voluntary Early Retirement 

Authority (VERA) and Voluntary Separation Incentive Payment (VSIP), will cause the 

IRS to incur separation costs associated with the consolidation. 
IRS-19 

Program Increases 

+462,867,000 / +2,376 FTE 

Reduce the Tax Gap Attributable to International Activities 

+$128,064,000 / +784 FTE

Initiative Summary 

This initiative requests an increase of $128.1 million and 784 FTE to promote compliance 

with U.S. international tax provisions and to address the tax gap attributable to 

international transactions. The IRS needs a multi-year investment, beginning in 

FY 2010, to deal more effectively with increasing and complex international tax activities 

of individual and business taxpayers. Funding this initiative would allow the IRS to 

better meet the challenges of international tax administration to collect the share of tax 

due to the U.S. Government. This initiative will produce additional enforcement revenue 

of $737 million per year (yielding an ROI of 7.1 to 1) once new hires reach full 

performance levels in FY 2012. 

The IRS needs to respond to expanding international activity by addressing the 

underreporting of taxes associated with international transactions, U.S. taxpayers living 

overseas and domestic taxpayers involved with offshore activities. 

In the last few years, the IRS has observed the following trends: 

• The number of multinational enterprises increased by twentyfold 

from 3,000 in 1990 to well over 63,000 in 2007; 

• The number of filings of Form 1120, U.S. Corporation Income Tax Return, 

containing international features has increased by 87 percent from 2002 to 2007; 

• Technology has enabled the growth in industrial globalization by making it easier 

for small and mid-market businesses to compete across borders; 

• Low- and no-tax jurisdiction countries are home to 58 percent of the foreign 

profits of U.S. multi-nationals; and 

• A 2006 U.S. Senate Permanent Subcommittee on Investigations report estimated 

that the IRS could lose $40-70 billion each year to low- and no-tax jurisdictions. 
IRS-20 

This IRS-wide effort to address international noncompliance will allow IRS to: 

• Enhance IRS-wide coordination and effectiveness in the identification of 

emerging international compliance issues; 

• Develop and resolve key international issues by increasing issue focus and 

specialization; 

• Increase examination coverage on the international issues with the highest 

compliance risk; 

• Discover international tax shelter issues; 

• Identify individual taxpayers involved in offshore arrangements that are designed 

to shield ownership of assets and income; 

• Address proliferation of ambitious tax evasion schemes through use of foreign 

and domestic trusts, offshore employee leasing, transfer pricing, and reinsurance 

schemes; 

• Address the Treasury Inspector General for Tax Administration (TIGTA) 

concerns with the timeliness of requesting and delivering international specialist 

assistance in examinations with international features as well as reporting and 

withholding issues related to U.S. source payments to foreign persons and entities. 

(“Actions Are Needed to Control Risks With International Transactions Reported 

on Corporate Income Tax Returns,” Reference Number 2008-30-114. May 2008. 

Washington, DC. Treasury Inspector General for Tax Administration); 

• Address the 2007 Government Accountability Office (GAO) concerns with the 

potential in under-withholding of U.S. source income flowing to undisclosed 

jurisdictions and unknown recipients offshore (“Challenges in Ensuring Offshore 

Tax Compliance.” GAO-07-823T. May 2007. Washington, DC. Government 

Accountability Office); 

• Investigate the use of offshore tax shelters by pension plans and the diversion of 

exempt assets offshore; and 

• Disrupt the financial structure of terrorist organizations and other financial 

criminal enterprises. 

The IRS resources needed to carry out the international initiative are shown below. 

FY 2010 Resources

Dollars

Areas of Focus FTE (In Millions)

Improve Identification and Coverage of International Issues 373 63.0

and Increase Issue Specialization to Address Complex 

International Transactions

Increase Coverage of Smaller International Businesses and 113 18.0

Individuals

Increase Reporting Compliance of Domestic Taxpayers with 109 16.1

Offshore Activity

Further National Law Enforcement and Counterterrorism 10 5.4

Objectives

Expand International Presence in Tax-Exempt and Government 16 2.4

Sectors

Increase Withholding Compliance Regarding Foreign Person's 40 3.9

U.S. Source Income

Expand Research and Workload Identification 2 0.5

Other Direct Costs 121 18.8

Total 784 128.1
IRS-21 

Initiative Detail 

Improve Identification and Coverage of International Issues and Increase Issue 

Specialization to Address Complex International Transactions 

(+$63.0 million / +373 FTE) 

The first component of this initiative will allow the IRS to combine the skills of Revenue 

Agents (RAs) with international and financial products experts and economists to address 

the global nature of tax administration. This initiative will: 

• Expand the identification and coverage of international and cross-border 

transactions of large and mid-size corporations, pass-through entities, and 

individuals; 

• Increase the examination coverage of small foreign corporations, pass-through 

entities, and individuals engaged in multinational transactions; and 

• Address the reporting and withholding issues that indentify U.S. source income 

flowing to foreign recipients. 

Increasingly, U.S. entities are engaging in cross-border transactions, developing complex 

multinational structures, and using the tax treaty network to lower their effective 

worldwide tax rate with both appropriate as well as abusive methods. International 

features on U.S. tax returns have now become the norm rather than an exception. The 

IRS is taking steps to increase its international expertise and ability to address the 

compliance challenges of globalization by increasing the training of domestic agents to 

identify significant international issues. This initiative will allow the IRS to increase and 

realign international examiners to match directly the industry and geography they serve 

and to identify and address risk on international issues more quickly. 

The IRS will improve its ability to ensure proper tax reporting of these complex 

transactions. The following are just a few of the indicators of risk that challenge how the 

IRS approaches international tax administration: 

• In 2005, 26 percent of filings by active foreign corporations owned by U.S. 

taxpayers represented low- and no-tax jurisdictions; 

• The amount of Foreign Tax Credit (FTC) claimed has increased 95 percent from 

$40.9 billion in 2002 to $79.8 billion in 2006; 

• U.S. taxpayers reporting transfers to and from foreign trusts, as well as receipts of 

certain foreign gifts, have increased dramatically; 

• According to the latest estimates from the Department of State, over seven million 

U.S. citizens live abroad. In the last 10 years, 4.7 million U.S. citizens have 

renewed their passports at U.S. Embassies and Consulates indicating long-term 

residence and employment overseas; and 

• Outsourcing of both management and service jobs to low wage countries 

continues with an estimated 3.3 million U.S. jobs expected to move to China and 

India by 2015. 
IRS-22 

Given the increasing globalization of individual and business taxpayers, the IRS must 

improve its identification and coverage of international issues on returns of domestic 

taxpayers and increase examination coverage of all international tax returns. The IRS 

will accomplish this by enhancing the international technical expertise of the workforce, 

hiring additional economists and international finance experts, and increasing issue focus 

and specialization. Some of the key tax issues arising from businesses operating 

worldwide include: 

• Transfer pricing; 

• Foreign tax credit generators; 

• Abusive transactions involving hybrid instruments; 

• Foreign earnings repatriation; 

• Valuation issues; 

• Transfers of property (tangible and intangible); and 

• Potential tax shelters. 

The additional International Examiners will address approximately 3,572 international 

issues in FY 2010, 4,286 in FY 2011 and 5,357 in FY 2012. This component of the 

initiative will generate additional revenue of $27.3 million in FY 2010, $342.9 million in 

FY 2011, and $612.0 million in FY 2012. 

Increase Coverage of Smaller International Businesses and Individuals 

(+$18.0 million / +113 FTE) 

The second component of this initiative requests additional International RAs and Tax 

Compliance Officers (TCOs) to increase the IRS coverage of the Foreign Resident 

Compliance Program (FRC). The FRC addresses: 

• U.S. citizens and residents who reside overseas or in U.S. Territories; 

• Businesses with assets of less than $10 million that maintain books and records 

overseas; 

• Nonresident aliens and corporations; 

• Expatriates who have given up their citizenship; and 

• Employees of foreign governments and international organizations in the U.S. 

The tax issues arising with these international taxpayers include: 

• Withholding and income tax on foreign athletes and entertainers; 

• Taxation of expatriates; 

• Tax issues arising from foreign tax credits; 

• Noncompliance with tax treaty provisions; 

• U.S. territory self-employment tax and tax credits; 

• Foreign earned income exclusion; 

• High-income nonfilers; 
IRS-23 

• U.S. businesses with permanent establishments in foreign jurisdiction; 

• Penalties associated with the failure to file required international forms; and 

• Employees of foreign governments and international organizations. 

In FY 2010, additional RAs will increase the IRS ability to examine an additional 

775 individual returns and 475 business returns in the FRC program. Additional 

specially trained TCOs will increase IRS coverage of U.S. and nonresident alien 

individuals engaged in international transactions. In FY 2010, the additional TCOs will 

examine 1,500 additional individual returns. The additional revenue expected for 

FY 2010, FY 2011 and FY 2012 respectively is $19.1 million, $31.9 million and 

$44.1 million. 

Increase Reporting Compliance of Domestic Taxpayers with Offshore Activity 

(+$16.1 million / +109 FTE) 

The third component of this initiative focuses on domestic taxpayers with offshore 

activity. Financial privacy laws in certain foreign jurisdictions pose a significant hurdle 

to IRS compliance efforts. These jurisdictions deliberately attract foreign businesses with 

government policies that minimize or mitigate taxes. The IRS is particularly concerned 

about offshore secrecy jurisdictions that: 

• Offer the instant formation and management of foreign trusts, international 

business companies (IBC), and other special purpose entities; 

• Lack transparency as they offer banking and financial secrecy by law and by 

custom (enforced by civil and criminal penalties including incarceration); 

• Shield the beneficial owner of an entity, transaction or asset; and 

• Do not exchange tax information with the United States. 

A few offshore secrecy jurisdictions have Tax Information Exchange Agreements (TIEA) 

in place as a means for the U.S. to receive information. However, the IRS cannot take 

full advantage of a TIEA in situations where the U.S. person’s identity is unknown. In 

addition, even where the U.S. is able to secure information about a U.S. taxpayer, the 

TIEA do not provide for assistance with the collection of U.S. taxes from foreign-based 

assets. 

To take advantage of TIEA while addressing offshore activities, the IRS plans to 

establish two new domestic taxpayer offshore activity groups to fill gaps in geographic 

areas. The additional specially trained RAs will uncover use of offshore credit cards, 

disguised corporate ownership, and brokering activities. 

In the first year, the additional FTE will generate an estimated 1,069 additional 

examinations with revenue of $37.5 million. Additional examinations expected in 

FY 2011 and FY 2012 are 1,136 and 1,145, respectively. The additional revenue 

generated for FY 2011 and FY 2012 is $54.7 million and $58.3 million, respectively. 

The IRS needs additional FTE in the Excise Tax program to address the cascading tax on 

foreign insurance companies. This work is estimated to contain over 3,000 insurance 
IRS-24 

entities. Other areas of focus include the foreign airlines ticket tax, foreign-based fuel 

refineries with contracts with U.S. suppliers, and imported heavy truck issues with 

Canada and Mexico. 

The additional FTE in the Excise Tax program will generate an estimated 402 additional 

closures in FY 2010 with revenue of $1.6 million. Additional closures expected in 

FY 2011 and FY 2012 are 422 and 426, respectively. The additional revenue generated 

for FY 2011 and FY 2012 is $2.7 million and $3.3 million, respectively. 

This initiative also will fund the anticipated growth of collection activities resulting from 

increases in small and large business examination assessments, foreign investment 

transactions, and withholding compliance for nonresident aliens with independent 

personal service income. This additional examination activity will require additional 

Revenue Officers (RO) in collection. 

In FY 2010, the ROs, Tax Specialists, and Tax Examiners will resolve approximately 

1,075 additional Tax Delinquency Investigations (TDI) and an additional 1,941 Tax 

Delinquency Accounts (TDA) generating additional revenue of $8.3 million. Additional 

TDA resolutions of an estimated 2,004 and 2,067 are expected in FY 2011 and FY 2012, 

respectively, and additional TDI resolutions of 1,110 and 1,145 are expected in FY 2011 

and FY 2012. The additional potential revenue generated for FY 2011 and FY 2012 is 

$14.4 million and $18.9 million, respectively. 

Further National Law Enforcement and Counterterrorism Objectives 

(+$5.4 million / +10 FTE) 

The fourth component of this initiative will allow the IRS to double the number of 

Criminal Investigation (CI) attachés, placing seven assistant CI attachés in established 

foreign posts of duty in Ottawa, Bogota, Mexico City, Barbados, Hong Kong, London, 

and Frankfurt, and will establish three new foreign posts of duty in Beijing, China; San 

Jose, Costa Rica; and Sydney, Australia. CI attachés will aggressively combat abusive 

foreign tax schemes and other tax evasion schemes. Further, they are an important 

component in supporting the Department of the Treasury’s objective of “Pre-empted and 

neutralized threats to the international financial system and enhanced U.S. national 

security.” 

By their very nature, counterterrorism investigations involving terrorist financing have 

many overseas components. The attachés are crucial in processing requests for assistance 

involving these overseas components. These cases generally involve fundraising that 

originates in the US and then the money is moved offshore through various layers, 

including parallel banking systems such as "hawalas" through multiple countries. The 

attachés work in supporting these counterterrorism investigations preempts and neutralize 

threats to US national security by identifying and seizing funds and assets bound for 

terrorist organizations. 

As an example, CI’s most important contribution to the national effort to combat 

terrorism occurred when it was tasked with taking the lead in the Treasury-directed effort 

to identify and trace assets of the former Iraqi regime for repatriation to the Iraqi people. 
IRS-25 

Criminal Investigation Special Agents operating in Iraq, Jordan, the United Kingdom, 

Syria, Denmark, Switzerland, and Qatar identified over $6 billion in assets outside Iraq 

that were subsequently frozen. Of these assets, more than $1.9 billion have been 

repatriated to date. 

The IRS expects to reduce significantly the turn around time and the backlog of Requests 

For Assistance (RFA) on international issues. Increasing the number of CI attachés in 

foreign posts directly supports the IRS efforts to combat international tax evasion 

schemes and terrorism by responding to RFAs in a timely manner. 

Requests for Assistance (RFA) Completion 

2,000 94% 100%

79% 1,800

900

0

1,

5

1,600 780%

1,

1,400

4501,

1,200 60%

48%

1,000 0

0

05

98

000

1,

800

1,

40%

600

400 7 % 20%

200 2 %

0 0 %

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

RFAs Com p leted % in cr ea s e fr om FY 2 0 0 7

In addition to contributions made to tax administration efforts, CI attachés have 

contributed to the success of the IRS asset forfeiture program. One of the most effective 

means of dismantling criminal enterprises is the seizure and forfeiture of their assets. 

Criminal Investigation attachés facilitated the seizure of $150.0 Million in assets in 

FY 2007 and $19.5 million assets in FY 2008. During FY 2008, CI attachés were also 

instrumental in the facilitation and administration of over $266.0 million in pending asset 

seizures and forfeitures resulting from prior year investigations. These monies have not 

yet been forfeited back to the United States due to ongoing case issues. 

A significant positive effect on tax compliance exists when the media reports successful 

criminal enforcement actions. The study, “IRS Criminal Investigation—Measuring the 

Marginal Monetary Effect of Criminal Investigation Convictions,” dated May 24, 2006 

by Professor Jeffrey A. Dubin of the California Institute of Technology, concluded that 

every dollar spent on criminal tax enforcement results in an additional $60 of revenue. 
IRS-26 

Expand International Presence in Tax-Exempt and Government Sectors (+$2.4 million / 

+16 FTE) 

The fifth component of this initiative allows the IRS to expand its international presence 

in the tax-exempt and government sectors. The IRS will: 

• Discover and investigate offshore tax shelters used by pension plans; 

• Identify and investigate the diversion of exempt assets to offshore corporations or 

individuals for non-charitable purposes; 

• Increase the coverage of government entities located in U.S. possessions and 

improve the reporting requirement of Form 1042; Annual Withholding Tax 

Return for U.S. Source Income of Foreign Persons; 

• Provide education and outreach to federal agencies in U.S. possessions; and 

• Develop regulations to respond to the growing divergence between the tax laws of 

the U.S. and its territories or possessions. 

Historically, the IRS has had a low enforcement presence in international tax compliance 

for tax-exempt and government entities. This initiative would result in approximately 

250 new international tax audits of tax-exempt and government entities annually, 

significantly increasing coverage in this emerging area. By providing additional 

coverage of targeted compliance risks, these efforts ensure tax expenditures relating to 

tax-exempt and government entities are spent in accordance with their public purpose. 

Increase Withholding Compliance Regarding Foreign Person’s U.S. Source Income 

(+$3.9 million / +40 FTE) 

The sixth component of this initiative requests additional funding and FTE to process 

approximately 6.2 million paper and electronic Forms such as 1042-S, Foreign Person’s 

U.S. Source Income Subject to Withholding and Forms 1042-T, Annual Summary and 

Transmittal of Forms 1042-S. 

The most efficient and effective tool that the IRS can use to ensure compliance is 

automatic matching of these payments to annual income tax return data. The Forms 

1042-S can be used to determine whether tax is owed on U.S. source income flowing to 

an offshore locality by determining the identity of the recipients. The matching program 

will reconcile the Forms 1042 and 1042-T with the Forms 1042-S to ensure the 

information on these forms agrees. 

A recent GAO report recommended a systematic analysis of the Forms 1042-S to target 

enforcement efforts, assess the Treasury’s exposure, and help policymakers decide 

whether changes need to be made to improve determinations of tax benefits. 

(“Challenges in Ensuring Offshore Tax Compliance.” GAO-07-823T. May 2007. 

Washington, DC Government Accountability Office). 
IRS-27 

Expand Research and Workload Identification (RWI) ($0.5 million/ 2 FTE) 

The seventh component of this initiative will increase staffing to allow RWI to take full 

advantage of the new complex e-filing data. RWI will build advanced models and filter 

algorithms in an environment that allows the IRS to assess risk at the individual taxpayer 

level. This will include subsidiaries, controlled foreign corporations, disregarded entities, 

partnerships, and trust vehicles. 

Other Direct Costs 

The IRS Appeals division ($3.9 million/ 22 FTE) will address international transactions 

on large, complex business returns as well as returns from smaller corporations and 

individuals with significant international activity. The IRS will need additional Appeals 

Officers to work the increased number of international issues. In addition, Appeals 

requires additional International Specialists, Economists, Financial Products Specialists, 

and Tax Computation Specialists. 

The IRS Office of Chief Counsel ($14.7 million/ 97 FTE) will provide legal advice and 

assistance. This is a result of expected increases in examination and litigation activities 

involving highly complex and abusive international transactions, Advanced Pricing 

Agreements (APA), and the need for assistance with Competent Authority. In addition, 

emerging issues and transactions of interest continue to increase requiring further 

Counsel involvement. 

Counsel workload continues to increase in the following areas: 

• Assisting Issue Management Teams (IMT) address complex and highly structured 

abusive transactions including the Foreign Tax Generators; 

• Addressing the increasing number of emerging issues and transactions of interest; 

• Developing issues along with the audit team in transactions such as Hedge Funds 

and Cost Sharing transactions; 

• Providing published guidance and involvement in the compliance initiative due to 

the increase in the number and complexity of global transactions; 

• Developing a closer relationship with treaty partners; 

• Joining the Office of Tax Shelter Analysis in reviewing and categorizing 

disclosures relating to reportable transactions filed by taxpayers and material 

advisors; 

• Contributing to transfer pricing compliance with Large and Mid-Size Business 

(LMSB) field and Competent Authority personnel through the Advance Pricing 

Agreement Program; 

• Supporting the Aggressive Tax Planning (ATP) Design Team under Organization 

for Economic Cooperation and Development (OECD) Working Party 8; and 

• Participating with the Joint International Tax Shelter Information Centre. 

In FY 2010, the additional FTE will allow Counsel to close more cases to help narrow the 

tax gap as shown in the following chart. 
IRS-28 

Projected Counsel Closures 

Program

Advanced 

Case 

Resolution

Published 

Guidance

Enforcement 

Advice and 

Assistance

Tax Court 

Litigation

Treaties, Legislation, 

Congressional & 

Executive 

Correspondence 

Training 

and Public 

Outreach

Initiative Projected 

Closures Increases 15 APA 33 595 525 124 16,700 

hours

The Taxpayer Advocate office ($0.2 million and 2 FTE) will address the expected 

increase in workload arising from this initiative. 

Expected Benefits 

In FY 2012, when the new hires reach full performance level, the IRS expects that this 

initiative will generate $737 million of additional annual enforcement revenue. 

$800 $737

sn

$600 $447

ioill

$400

 min

$200 $128 $94 $105 $103

$-

FY 10 FY 11 FY 12

Cost Enforcement Revenue

ROI 7.1 to 1

 4.3 to 1

 0.7 to 1
IRS-29 

 Improve Reporting Compliance of Small Business/Self Employed (SB/SE) Taxpayers 

+$94,215,000 / +755 FTE

Initiative Summary 

This initiative requests an increase of $94.2 million and 755 FTE to address and improve 

compliance among small business and self-employed taxpayers in the tax gap element of 

reporting compliance. Additional enforcement revenue of $567.2 million per year 

(yielding an ROI of 7.8 to 1) will be produced once new hires reach full potential in 

FY 2012 by increasing examinations of businesses and high-income and specialty 

program returns and by increasing audits involving flow-through entities. 

The overall gross tax gap is estimated at $345 billion, reflecting a noncompliance rate of 

16.3 percent. Of that amount, 75 percent, or $257 billion, is attributable to small business 

taxpayers. Underreporting is estimated at $285 billion and constitutes nearly 83 percent 

of the tax gap. This initiative will maintain the balanced coverage approach of all 

taxpayer segments with a focus on effectively addressing high-risk tax gap areas. 

Initiative Detail 

Underreporting Compliance (+$82.6 million / +670 FTE) 

The Underreporting Compliance portion of the tax gap reflects the underreporting of 

income and the overstatement of deductions on returns filed timely. This portion of the 

tax gap is comprised of four major components: individual income tax, employment tax, 

corporate income tax, and estate and excise taxes. Overall underreporting of individual 

income tax and employment tax constitutes over 70 percent of the gross tax gap. 

Individual income tax underreporting totals $197 billion, $109 billion of which is 

attributed to understated net business income. 

Another $56 billion represents underreported non-business income such as wages, tips, 

interests, dividends, and capital gains. Employment tax accounts for an additional 

$54 billion of the underreporting tax gap with $39 billion representing self-employment 

tax. 

In FY 2010, this investment will increase staff resources by 390 Revenue Agents (RAs), 

110 Tax Compliance Officers (TCOs), 80 Specialty Field Examination attorneys, RAs 

and TCOs, and 90 Correspondence Examination Customer Service Representatives. 

Field Examination 

The RAs will continue to focus on high priority segments of the tax gap such as Abusive 

Tax Avoidance Transactions (ATAT), structured transactions, and corporate and highincome examinations involving flow-through entities (e.g. trusts, partnerships, and 

S corporations). The ATAT program will continue to identify new schemes and examine 

complex listed transactions such as in the Global Settlement Initiative, which has so far 

resulted in almost $7 billion in tax assessments. Updated processes for selection of cases 
IRS-30 

also allow for the grouping of taxpayers with similar tax filing behavior and permits 

focusing on priority elements of the tax gap and selecting the best cases for examination. 

Recognizing that tax return preparers are a critical component of tax administration, an 

IRS return preparer strategy is being developed to identify and address egregious 

preparers. The IRS will implement a fully coordinated preparer penalty program, 

consider initiation of preparer projects, and refer practitioners to the Office of 

Professional Responsibility when appropriate. 

The RAs and TCOs will examine an additional 13,000 individual income tax returns 

(Individual Master File closures - IMF) and 1,700 business income tax returns (Business 

Master File closures - BMF) in FY 2010 with additional revenue of $47.5 million. Once 

new hires reach full potential in FY 2012, this investment is projected to produce an 

additional 19,000 individual return audits and 2,400 business return audits, potentially 

generating $301.5 million in increased revenue. 

Individual returns are expected to grow by 5 percent from FY 2008 through FY 2011. 

Despite this growth, the IRS estimates that with the addition of Field Examination 

resources, the current audit coverage rate of approximately 1 percent for individual 

returns can be maintained. 

Specialty Tax Programs 

Specialty Programs addresses the tax gap by examining tax returns and addressing 

compliance issues in the Employment, Excise, and Estate and Gift tax programs. In the 

Employment Tax program, a full Employment Tax National Research Program (NRP) 

will be undertaken to determine national employment tax compliance levels. 

Excise tax referrals from the Large and Midsize Business (LMSB) have been a 

compliance concern in certain abstracts including foreign insurance, ozone depleting 

chemicals, and air transportation taxes for corporate aircraft. Excise Tax RAs (25 FTE) 

will conduct approximately 1,100 new examinations in FY 2010 with an additional 

revenue of $3.9 million. Once new hires reach full potential in FY 2012, this investment 

will produce an additional 1,300 return audits, generating $8.3 million in increased 

revenue. 

Employment Tax RAs and TCOs (30 FTE) will conduct approximately 4,000 more tax 

audits in FY 2010 with an additional revenue of $4.2 million. Once new hires reach full 

potential in FY 2012, this investment is projected to produce an additional 4,700 return 

audits, potentially generating $9.2 million in increased revenue. 

In the Estate tax area, there has been erosion in the Estate tax audit rate because filing 

volumes have not declined as expected. Therefore, the 28 percent coverage rate for 

estates over $5 million is projected to slip to 22 percent in FY 2009 and FY 2010. 
IRS-31 

Estate and Gift attorneys (25 FTE) will conduct approximately 300 audits in FY 2010 

with additional revenue of $9.4 million. Once new hires reach full potential in FY 2012, 

this investment is projected to produce an additional 350 return audits, generating 

$17.2 million in increased revenue. 

Correspondence Examination

The Correspondence Examination program addresses the tax gap through increased 

enforcement presence in priority segments and balanced coverage. The additional 

90 FTE will examine approximately 21,000 more cases in FY 2010 with an estimated 

$89.6 million of additional revenue. Once new hires reach full potential in FY 2012, this 

investment is projected to produce an additional 26,000 individual return audits, 

generating $220.5 million in increased revenue. 

Campus Compliance Services (+$1.7 million / +20 FTE) 

The Compliance Services Collection Operation (CSCO) addresses significant areas of the 

nonfiling tax gap. This initiative will increase the number of large Taxpayer Delinquency 

Investigations and business nonfilers investigations closed. The additional 20 FTE will 

allow the CSCO program to close an additional 115,000 Return Delinquencies and 

52,000 BMF Substitute For Returns (6020b) cases in FY 2010 with an estimated 

$5.0 million in additional revenue. Once new hires reach full potential in FY 2012, this 

investment is projected to produce an additional 126,000 Return Delinquencies and 

57,000 6020b closures, generating $10.5 million in increased revenue. 

Other Direct Costs 

The IRS Appeals division ($5.2 million and 30 FTE) will process additional cases 

generated from increased examination and collection program staffing. 

The IRS Office of Chief Counsel ($4.4 million and 32 FTE) will provide legal advice and 

assistance to Field Examination at the audit stage of cases involving abusive tax 

avoidance transactions, corporate and high-income examinations involving pass-through 

entities, and structured transactions. Taxpayers have increasingly used offshore tax 

havens to hide their income. Counsel will provide legal advice and assistance to 

Examination at the audit stage of cases involving overseas transactions covered by 

current law and treaty provisions, as well as emerging tax evasion transactions. These 

cases are often technically complex and, therefore, require the dedication of additional 

Counsel resources. Counsel will litigate those cases that are not resolved at the audit or 

appeals stages. 

Funding for the Taxpayer Advocate Service ($0.3 million and 3 FTE) will be applied to 

examination programs to ensure the IRS follows appropriate procedures and does not 

create unnecessary burdens or compromise taxpayer rights. 
IRS-32 

Expected Benefits 

This request will produce $567.2 million in additional annual enforcement revenue once 

new hires reach full potential in FY 2012. 

$567 $600

$500 $431

sn

$400

ioll

$300

 mi

$160

ni

$200 $94 $73 $73 $100

$-

FY 10 FY 11 FY 12

Cost Enforcement Revenue

ROI 7.8 to 1

 5.9 to 1

 1.7 to 1
IRS-33 

Expand Document Matching for Business Taxpayers

+$26,237,000 / +300 FTE

 Initiative Summary 

This initiative requests an increase of $26.2 million and 300 FTE to increase the coverage 

of the IRS Automated Underreporter (AUR) program. Matching third-party information 

such as W-2s and 1099s against tax returns is critical to ensure compliance. This 

initiative will increase the coverage of the document matching program to reduce the 

number of taxpayers who misreport their income. This request will generate $386.5 

million in additional revenue once new hires reach full potential in FY 2012 (an ROI of 

17.0 to 1). 

 

Initiative Detail 

The IRS requests $22.1 million and 266 FTE for the IRS Automated Underreporter 

(AUR) program. The 266 FTE will reconcile the Forms 1099 with taxpayer returns and 

help to address the remaining 7.5 million taxpayers whose returns may have misreported 

income. The additional staff will follow up any discrepancies with taxpayers and 

decrease the tax gap, increase voluntary compliance, and reduce the number of taxpayers 

who underreport income in future tax years. The objective of the AUR program is to 

minimize revenue loss through document matching of taxpayer account information. 

About 12 million taxpayers may currently misreport their income based on third-party 

information returns. Of those, the individual and small business AUR programs process 

approximately 4.5 million taxpayer cases, leaving an unaddressed 7.5 million taxpayers 

whose returns may have misreported income. 

Historical results are being analyzed to identify productive inventory segments and 

increased emphasis is being placed on targeting egregious repeat offenders. This 

initiative also will help decrease the tax gap, increase voluntary compliance, and reduce 

the number of taxpayers who underreport income in future tax years. 

The AUR program will reconcile approximately 261,000 additional tax returns in 

FY 2010, generating approximately $191.8 million in additional revenue. Once new 

hires reach full potential in FY 2012, this investment is projected to produce an additional 

550,000 individual return audits, generating $386.5 million in increased revenue. 

Other Direct Costs 

The IRS Appeals division ($1.4 million and 8 FTE) will process additional cases that will 

be referred by the AUR document-matching program. 

IRS Counsel ($1.0 million and 10 FTE) will provide increased legal advice and assistance 

in litigating the increased number of cases and related published guidance. 

Taxpayer Advocate Service ($1.7 million and 16 FTE) will assure that the IRS has 

followed appropriate procedures and it has neither created an unnecessary burden nor 

compromised taxpayer rights. 
IRS-34 

Expected Benefits 

The AUR program has one of the highest returns on investment ratios of all compliance 

programs. By FY 2012, the return on investment is expected to reach 17.0 to 1. This 

initiative will generate $386.5 million in additional annual enforcement revenue once the 

new hires reach full potential in FY 2012. 

$500

$387

s

$400

n

$309

io

$300

 mill

$192

$200

in

$100 $26 $23 $23

$-

FY 10 FY 11 FY 12

Cost Enforcement Revenue

ROI

17.0 to 1

 13.4 to 1

 7.3 to 1
IRS-35 

Address Nonfiling/Underpayment and Collection Coverage 

+$83,644,000 / +491 FTE

Initiative Summary 

This initiative requests an increase of $83.6 million and 491 FTE to address the tax gap 

elements of non-filing and underpayment as well as fund the costs of building two 

additional Automated Collection System (ACS) sites. Over $359.4 million of additional 

revenue per year (yielding a return on investment of 5.6 to 1) will be produced once new 

hires reach full potential in FY 2012. 

The additional staff will provide an increased focus on improving voluntary compliance 

and decreasing non-filing, as well as augment collection coverage. This investment will 

increase staff resources in field collection by 300 Revenue Officers (ROs). Automated 

Collection System (ACS) campus compliance staff resources will increase by 

120 Customer Service Representatives (CSRs) and 30 support positions. 

From FY 2005 to FY 2008, available workload for Collection increased 14 percent while 

Collection staffing decreased 7 percent. Additionally, nearly half of available workload 

is generated by balance due and delinquent return first notices, the volume of which is 

predicated on taxpayer behavior and influenced by economic and societal issues, factors 

not within IRS control. 

The IRS achieved a 27.2 percent increase in Collection efficiency from FY 2005 to 

FY 2008, thus keeping collection coverage stable. Despite the increased efficiency, the 

increasing workload did not allow the IRS to expand the impact of coverage in the tax 

gap. This initiative will position Collection to broaden its overall coverage and more 

effectively address the tax gap. 

Initiative Detail 

Nonfiling/Underpayment (+$53.6 million / +450 FTE) 

Nonfiling comprises 8 percent or $27 billion of the tax gap. In recent years, nonfilers 

with high incomes and higher amounts of net tax due have dominated the nonfiler 

population. Through tax year 2005, repeat nonfilers accounted for 47 percent of the 

nonfiling problem. Reducing repeated nonfiling could significantly lower the nonfiler 

inventory and addressing those with high incomes could appreciably impact the tax gap. 

Revenue Officers (ROs) and Campus Compliance employees use an array of techniques 

to address nonfiling, including the creation of compliance assessments based on available 

internal and third-party information. Payment Compliance represents 10 percent, or 

$33 billion, of the tax gap. 

Potentially Collectible Inventory (PCI) increased from $81 billion in 2004 to $113 billion 

in 2008. New PCI compliance assessments increased from $14 billion in 2004 to 

$26 billion in 2008. 
IRS-36 

Field Collection 

This initiative will maximize collection efforts on key compliance assessments focused 

on improving voluntary compliance and decreasing nonfiling. It will also augment 

Collection coverage. The additional Field Collection staff will produce an estimated 

5,700 additional tax delinquency accounts (TDA) and 2,900 additional tax delinquency 

investigations (TDI) in FY 2010. This will generate $69.5 million in additional revenue. 

At full potential in FY 2012, new hires will produce an additional 12,000 TDAs and 

6,000 TDIs. This will generate $154.6 million in additional revenue. 

Automated Collection System (ACS)

The additional ACS staff will produce approximately 40,000 tax delinquency accounts 

and 10,900 tax delinquency investigations in FY 2010. This will yield approximately 

$96.5 million in revenue. 

 

Once new hires reach full potential in FY 2012, this investment will produce an 

additional 41,000 TDAs and 11,100 TDIs, which represents an additional $204.8 million 

in revenue. 

Build Two Automated Collection System (ACS) Sites (+ $13.8 / 0 FTE) 

This initiative funds the build out of two new Automated Collection System (ACS) sites, 

one in Small Business/Self-Employed (SBSE) and one in Wage & investment (W&I), to 

address the growing value of the inventory of collection cases. 

Underpayment represents 9.6%, or $33 billion, of the gross tax gap estimated at 

$345 billion. Previous ACS initiatives have automated and streamlined collection 

processes, but there still is a substantial inventory of outstanding tax balance cases. 

Adding two ACS sites will increase compliance coverage of unpaid assessments. The 

following charts show the value of ACS inventories in SB/SE and W&I, and the 

increases over the last three fiscal years. 

Dollars in billions

Year-End Sept Year-End Sept Year-End Sept 

2006 2007 2008

ACS Inventory Value $17.70 $19.40 $21.90
IRS-37 

As indicated in the following chart, the IRS has increased coverage of the nonfiler case 

inventory each year since 2005. The number of outstanding nonfiler cases that remain 

adversely affects the nonfiling component of the tax gap calculated at $27 billion and 

erodes voluntary compliance accomplishments. 

Nonfiler Inventory

% of 

Available Cases Available 

Tax Business Cases Selected Cases 

Year Unit (in millions) (in millions) Worked

W&I 4.0 2.0 50.0%

 2007* SB/SE 2.3 1.6 69.6%

Total 6.3 3.6 57.0%

W&I 5.6 1.7 30.4% 2006

SB/SE 2.8 1.5 53.6%

Total 8.4 3.2 38.1%

W&I 5.4 1.2 22.2% 2005

SB/SE 2.5 1.3 52.0%

Total 7.9 2.5 31.7%

* TY 2007 case inventory was affected by the Economic Stimulus Program

ACS is primarily a telephone operation, and therefore, adding more trained telephone 

assistors will deliver faster taxpayer service, reduce inventory backlogs, and increase case 

resolutions. 

Tax Liens (+$9.6 million / 0 FTE) 

The IRS requests $9.6 million for the Tax Lien program. Filing fees for tax liens and 

releases that the IRS must pay have increased at a rate well above inflation increases. 

Annual filing fee increases have ranged from 9 to 31 percent over the past five years. 

Fees associated with the filing of liens and releases are set by each filing location and can 

increase at any time without prior notification. 

To cover these increases, in recent years the IRS has used 50 percent carryover funds user 

fees. Fully funding the Tax Lien program is critical to supporting enforcement efforts to 

improve compliance, which is one of the key components of the IRS strategy to narrow 

the tax gap. 

IT Requirements (+$0.9 million / 0 FTE) 

IRS requests $0.9 million to enhance the Reasonable Cause Assistant (RCA) system, 

which is an automated decision support tool. RCA’s current design enables employees to 

make penalty determinations for both Individual Master File (IMF) Failure to File and 

Failure to Pay and Business Master File (BMF) Failure to Deposit (FTD). The additional 
IRS-38 

resources will allow the IRS to expand the system to include Business Master File 

(BMF), Failure to File (FTF), and Failure to Pay (FTP) functionality. 

It also will enhance the Collection Field Centralized Case Processing by streamlining the 

penalty approval and abatement request processes. Additionally, it will support 

corrective actions identified by TIGTA to include more accurate abatement 

documentation. 

Other Direct Costs 

The IRS Appeals division ($2.8 million and 18 FTE) will address filing and payment 

compliance by supporting the increased coverage of taxpayers who fail to file returns or 

who underpay their tax liability. These additional FTE are necessary if IRS is to 

adjudicate the 2,750 additional cases that will be generated through this initiative. 

Appeals initiative resources will support Collection efforts in key areas such as 

improving voluntary compliance and decreasing nonfiling. These staff will support 

Small Business/Self Employed’s (SB/SE’s) increased coverage of potentially collectible 

inventory (PCI) by increasing the ability to address priority collection cases. IRS also 

will be able to protect $111.2 million in revenue through the resolution of cases in the 

Collection Due Process (CDP), Collection Appeals Program (CAP), and Trust Fund 

Recovery Penalty (TFRP) areas. 

The IRS Office of Chief Counsel ($2.1 million and 15 FTE) will provide legal advice and 

assistance in litigating the increased number of cases and support for additional tax 

shelter litigation and published guidance. 

The Taxpayer Advocate Service ($0.8 million and 8 FTE) will ensure the IRS follows 

appropriate procedures and does not create unnecessary burdens or compromise taxpayer 

rights. 
IRS-39 

Expected Benefits 

Once the new hires reach full potential in FY 2012, they will produce an additional 

12,000 Tax Delinquency Accounts (TDA) and 6,000 additional Tax Delinquency 

Investigations (TDI) in Field Collection; an additional 41,000 TDAs and 11,100 TDIs in 

the Automated Collection System program; and will generate $359.4 million in additional 

revenue. 

ROI 5.6 to 1

$400 4.4 to 1 $359

$284

sn

$300 2.0 to 1

io mill

$200 $166

in

$84 $100 $64 $64

$-

FY 10 FY 11 FY 12

Cost Enforcement Revenue
IRS-40 

Address IT Security and Material Weakness

+$90,000,000 / +36 FTE

Initiative Summary 

This initiative requests an increase of $90.0 million and 36 FTE to improve IT security. 

This initiative will: 

• Ensure the integrity of the tax system and maintain taxpayer confidence; 

• Allow the IRS to improve the privacy and security of taxpayer information; 

• Segregate securely the development, testing, and production environments for IT 

systems; 

• Provide an enterprise solution to deploy end-to-end audit log collection, storage, 

and reporting; and 

• Implement the Federal Information Security Management Act (FISMA) security 

compliance controls on all enterprise-wide Windows and UNIX computing 

assets. 

Initiative Detail 

Enhanced Enterprise Security Risk Management Tools (EESRMT) 

(+$24 million / +10 FTE) 

This security project will enhance the privacy and security of taxpayer information by 

providing a set of advanced security tools that support security situational awareness, 

vulnerability analysis, security compliance, network forensics, resiliency, and security 

auditing. This initiative will enhance the IRS ability to deliver secure internet based services 

to taxpayers, stakeholders, and IRS employees. With the evolving sophistication of the 

threats and the increasing number of internet-based phishing and malware attacks against 

government information systems, the IRS needs to upgrade and strengthen its security 

infrastructure. 

This project supports the areas of Disaster Recovery (DR), Security Governance of Risk 

Management, Network Security Tools and the Computer Security Material Weakness 

(CSMW) Plan. In the Disaster Recovery area, this initiative will reduce the time required to 

resume critical business processes after a disaster by deploying new technologies that 

specifically focus on operational resiliency, redundancy, storage, optimization, availability 

and recovery. 

The EESRMT will implement the Agency Security Program Plan that will be Federal 

Information Security Management Act (FISMA) compliant. The security program plan will 

conduct agency Security Awareness Summits; provide Security Professional Development, 

Training and Formal Certification, perform Security Strategy Development, and meet NIST 

800-100 requirements; and implement a Security Enterprise Risk Management (SERM) 

General Support System (GSS) infrastructure to house all risk management solutions, 

compliance tools, monitoring, auditing, and security development and testing. Tools will be 
IRS-41 

acquired to address new Federal security mandates and to aggressively resolve the agency 

long-standing Security Material Weaknesses. 

Enhance IT Systems Resiliency (+$9 million / +5 FTE)

The IRS Enhanced IT Systems Resiliency will mitigate risks to the most critical business 

processes by leveraging the latest technologies to enhance existing IT systems disaster 

recovery and systems resiliency capabilities. These technologies will allow business 

applications to meet Recovery Time and Recovery Point Objectives (RTO/RPO). 

 

The deployment of these technologies will ensure that RTO/RPO can be achieved so that 

mission-critical systems can be restored within expected timeframes. 

Enterprise Security Risk Management (ESRM) Security Governance Project 

Management Office (PMO) (+$5 million / +5 FTE)

To support these projects, a Security Governance PMO will be expanded and formalized 

within the Strategic Planning, Investment and Governance program to perform project 

governance; manage project activities through the Enterprise Life Cycle (ELC); perform 

Capital Planning & Investment Control (CPIC) reporting for these new investments; and 

manage certification & accreditation documentation. The PMO also will conduct appropriate 

health assessments for security projects to ensure that projects stay within cost, schedule, and 

performance as well as adhere to reporting requirements of the appropriate governance 

boards. 

Network Infrastructure Security Tools (+$10 million / 0 FTE)

The Network Infrastructure Security Tools that support the enhanced enterprise security 

situational awareness, vulnerability assessment, security compliance, and forensics analysis 

effort will deploy the capability to centrally and automatically detect and forensically triage 

malicious code infections of workstations and servers that bypass existing security 

infrastructure components. It will provide significantly enhanced capabilities to assess the 

real-time security situational awareness and enterprise security risk posture of the operational 

production environment. 

This effort also supports implementation of a set of automated tools to support vulnerability 

management, security compliance, and security controls testing, that will be in full 

compliance with the OMB Security Content Automation Protocol (SCAP) requirements. 

This will allow the IRS to capture, analyze, correlate and archive security information at the 

enterprise level across multiple systems. 

This complex task will provide the advanced capability necessary to support the safe 

expansion of existing business tax compliance capabilities and the protection of sensitive 

taxpayer data. The IRS also will leverage these automated tools to support quality 

enhancements to the certification and accreditation process for all IRS applications and 

systems. A fully automated solution will provide the IRS with an opportunity to ensure 

consistency, and most importantly, to gain efficiencies with managing the security posture of 

its many systems and applications. The tools not only effectively reduce costs and time 
IRS-42 

required to meet requirements for certification and accreditation, but also offer additional 

opportunities to mitigate information security risks by improving risk management and 

ultimately the security posture of the IRS. 

Harden Software Applications and Network Infrastructure Security 

(+$45.0 million / +10 FTE) 

The IRS will resolve long standing IT material weaknesses by resolving the fundamental 

flaws in the IT infrastructure and capabilities in the following areas: 

• Develop separate development, test, and production environments to properly 

segregate and secure application development and deployment; 

• Deploy a security infrastructure to support audit controls over high-volume data 

extracts; 

• Centralize IT assets to ensure asset inventories are accurate and that consistent 

management and security practices are applied to all applications and IT assets 

across the IRS; 

• Prohibit the connectivity of rogue or unauthorized users and systems to the 

network; 

• Deploy tools to enhance the monitoring of high-volume, sensitive data extracts as 

required by OMB Memorandum 06-16, “Protection of Sensitive Agency 

Information”; 

• Implement an enterprise-wide solution to provide encrypted electronic 

transmission of federal tax data outside of the IRS; and 

• Centralize and simplify authentication and access control to reduce the overall 

risk of unauthorized access to systems and bring the IRS inline with other federal 

government agencies and Department of the Treasury mandates. 

The IRS has had computer security material weaknesses for over a decade. The IRS is 

increasingly reliant on IT systems to deliver improved electronic services to taxpayers 

and drive internal productivity enhancements. As threats to IRS systems grow in number 

and sophistication, and security requirements continue to increase, the IRS must harden 

the IT infrastructure for the critical applications, systems, and underlying information that 

support tax administration. 

The fact that all production and development systems are connected to the same enterprise 

network is a key contributor to the Government Accountability Office (GAO) repeat findings 

on several security weaknesses, including elevated systems access and security configuration 

control. The current environment also limits the IRS capability to conduct comprehensive 

security testing prior to new application deployment. The proposed enhancements will allow 

the IRS to implement the logical separation of networked systems and applications used for 

development and testing (regardless of their physical or geographical location) from the 

production network carrying mission essential traffic and data. 

OMB Memorandum 06-16 requires that agencies properly safeguard information assets. In 

response to this memorandum, the IRS will procure and deploy a suite of secure front-end 

tools to enhance security and audit controls over high-volume, sensitive data extracts. 
IRS-43 

The legacy decentralization control, management, operations and maintenance of IT assets 

across the enterprise is another contributing factor in the IRS current material weakness. To 

address accountability, control and security issues associated with the current-state, the IRS 

is centralizing all IT resources into the corporate Modernized & Information Technology 

Services (MITS) support organization. The centralization all IRS IT assets under MITS will: 

• Enable the IRS to maintain accurate and complete inventories; 

• Ensure consistent processes are applied across all applications; and 

• Ensure systems are securely operated and maintained. 

Significant risk reduction in this area of asset management will be realized through the 

implementation of centralized IT asset control under the MITS organization. Full 

implementation of these capabilities is expected in 2011. 

Enterprise Single Sign-on (ESSO) (+$15.0 million / +10 FTE)

This project will provide an integrated and unified approach to enterprise single sign-on 

that is compliant and fully interoperable with recent requirements and mandates 

(including HSPD-12, and Federal Desktop Core Configuration FDCC). The goal of this 

investment is to provide users with the ability to access IRS applications and network 

resources using a single, secure login. Upon a single sign-on, users will be authenticated 

to all network resources and all facility physical security access control system 

applications that are a part of the enterprise infrastructure network. The FY 2010 

resources for this project will provide for logical systems integration, engineering, 

software development and procurement of supporting hardware platforms to host the 

ESSO solution set, including facility security access control system software and 

hardware. 

This project will help remedy the Computer Security Material Weakness (CSMW) in the 

area of Network Access Controls and Application/Systems Access Controls. The ESSO 

investment directly supports the correction of these weaknesses by providing access 

management across the enterprise. The tool will centralize authentication and access 

control. 

Currently, the IRS makes use of a large collection of disparate user identification and 

authentication mechanisms in order to gain access to the enterprise network 

infrastructure, IRS logical applications and access to physical facilities. This situation 

introduces high costs as system developers must implement custom security code for 

each network application, resulting in a variety of scalability and maintenance problems. 

Users are currently required to develop and remember a large number of user IDs and 

passwords, and the new Federal Desktop Core Configuration (FDCC) guidance requires 

IRS users to make use of longer length passwords. 

Transition planning and detailed implementation strategies will be developed and refined 

in FY 2009, and pilot efforts will address the complex issues associated with the 

development of the Enterprise Single Sign-on solution set. Initial implementation in 

FY 2010 will focus on the IRS mission essential applications and systems supporting tax 
IRS-44 

administration to include: network logon, web portals, integration with Active Directory, 

ID management and also the facility physical security access control systems at the major 

IRS facility locations (such as the headquarters complex, computing centers and 

submission processing centers). The initial implementation will provide a “reduced signon” capability to IRS. Full implementation in the out-years will expand the ESSO 

solution set to an increasing number of IRS applications and facilities until the final goal 

of a unified framework for security authentication (single sign-on) is achieved. 

Separate Development, Test, and Production Environments (+$15 million / 0 FTE)

Consistent with OMB and Treasury guidance, this initiative will provide segregated 

environments to improve IRS capabilities and enhance security. This will provide an 

industry best practice suite of tools and technologies and will enable the IRS to develop a 

more robust, thoroughly tested and managed capability. It will enhance the security of 

the operational environment and offer security and separation from the development 

environment. These segregated capabilities will help the IRS to meet both assurance and 

governance requirements. 

Tools to Enhance Security Controls of Sensitive Data Extracts (+$9 million / 0 FTE)

The IRS is addressing OMB Memorandum 06-16 by improving its capability to log, track 

and manage data extracts from critical databases, systems and applications that contain 

sensitive information. A data leak prevention capability will be implemented to reduce 

the risk of data loss and disclosure. Enhancements will be made to provide the ability to 

manage sensitive data extracts and ensure that they are erased once they are no longer 

needed. The capability will allow disclosure incidents to be logged and analyzed and will 

integrate with the enterprise-wide audit solution. 

Centralized IT Asset Control (+$6 million / 0 FTE)

This effort will include the engineering and delivery of the centralized environment and 

authoritative IT asset inventory. The design and deployment will be prioritized and 

focused by utilizing cross-organizational work groups to evaluate, consolidate and 

prioritize enterprise-wide processes and data needs/requirements. 

 Security Audit Trails (+$18.0 million / +10 FTE) 

Treasury Inspector General for Tax Administration (TIGTA) and GAO reviews identified 

systemic security audit vulnerabilities in the current IRS information infrastructure. The 

IRS addressed these issues by establishing the Security Audit Trails program. This 

program will maintain an enterprise-wide comprehensive audit trail capability that 

records user activities, applications, and system processes. Relevant data will be 

captured and tools will be made available to allow reviewers to detect and respond to 

potential harm. In the Audit Trails area, this initiative will enhance audit trail collection 

and retrieval capabilities, significantly improving the IRS ability to process, store, 

review, and report computer system auditable events. 
IRS-45 

The Extended Audit Data Collection, Retrieval requirement for availability and access to 

system audit data is challenging and requires maintaining six years of online data and a 

seventh year for “near line data.” The business functions that support tax compliance efforts 

and avoid unauthorized access to sensitive data are critical IRS drivers for these 

requirements. 

At the same time, there are serious constraints on funding, space, power and other resources 

for existing computer facilities to accommodate such a large volume of protected system 

audit data online. This effort will provide a technical solution to leverage existing 

capabilities and integrate them by using protected/secure storage and retrieval capabilities. 

The project will meet these goals by implementing upgrades to existing systems and will 

provide the capability for all FISMA Systems to be compliant with the established audit 

standards through a rolling release strategy. 

A prototype for IRS Operating Software platforms/applications will be deployed utilizing the 

tools. In addition, individual application audit plans will be developed and made available as 

a reusable process across the enterprise. Subsequent releases of Security Audit Trails will 

allow for additional audit plans to be developed and implemented. 

Evaluations of all current processing audit collection environments will be conducted to 

determine whether to upgrade, retire, or replace. In addition, the current Security Audit and 

Analysis System (SAAS) will be enhanced to handle the additional workload and meet the 

material weakness closure criteria. The ultimate goal is to integrate the final products into an 

end-to-end framework to allow IRS security analysts and TIGTA to better access and control 

the data for investigative purposes. 

Security Compliance Posture Monitoring and Reporting (+$3.0 million / +6 FTE) 

The objective of the Security Compliance Posture Monitoring and Reporting (SCPMaR) 

project is to provide the IRS with the real-time capability to monitor, measure, and report 

on the effectiveness of technical security controls enterprise-wide. 

The solution will provide the following six core functional and operational capabilities: 

• Monitoring and measuring security configurations; 

• Managing security configurations throughout the system life cycle; 

• Standardizing the use of NIST defined Security Content Automation Protocol 

(SCAP); 

• Automating security compliance assessments and reporting; 

• Facilitating risk management processes by verifying that systems operate within 

established security configuration baselines; and 

• Supporting change and baseline control processes by documenting security 

configuration baselines and accepted deviations. 
IRS-46 

Production deployment will be geographically staged at major IRS sites (e.g. Enterprise 

Computing Center (ECCs), Campuses) and their associated posts of duty. At each 

computing site, users will be trained and computing assets integrated into the solution. 

Expected Benefits 

Investments in IT security will protect privacy and security of taxpayer information and the 

integrity of IRS systems by: 

• Improving the capability to perform enterprise security situational awareness, 

network-based digital forensics, and vulnerability and compliance reporting. 

Centralization of the response effort and a reduction of the requirement for 

manual intervention will improve IRS efficiency and effectiveness. The advanced 

environment will support safe expansion of existing business tax compliance 

capabilities and will better protect data. 

• Integrating automated tools into enterprise security risk management activities 

and the certification and accreditation process. This integration will improve 

efficiency and ensure risk-based decisions are consistently applied across the IRS. 

• Deploying new technologies that specifically focus on operational resiliency, 

redundancy, storage, optimization, availability and recovery. This will enhance 

the IRS ability to resume critical business processes within stated business 

recovery objectives after a disaster event. 

• Enhancing audit trail collection and retrieval capabilities. Treasury Inspector 

General for Tax Administration (TIGTA) and GAO reviews identified systemic 

security audit vulnerabilities in the current IRS information infrastructure. These 

reviews allow the IRS to identify enhancements to its audit trail collection and 

capabilities. These enhancements will improve the IRS ability to process, store, 

review, and report of computer system auditable events. 

• Maintaining security and surety of critical Personal Identifiable Information on 

IRS systems. 

• Protecting IT system operability and sustainability from attack (inside or outside) 

by specifically improving the capability to process, store, review, and report on 

computer system auditable events. 

• Maintaining operable, secure and trusted IT systems by including the capability to 

track and identify attackers and conduct meaningful damage assessment. 

• Providing significantly enhanced audit trail capabilities to identify occurrence of 

unauthorized activities, and inappropriate system configurations. 

• Detecting unlawful, unauthorized, or inappropriate activities on IRS systems that 

may result in the compromise of financial information and fraudulent 

transactions, such as unauthorized payments. As IRS systems process higher 

percentages of taxpayer transactions, improved monitoring is required to ensure 

the integrity of IRS systems. 

• Automating security configuration assessments on all Windows and UNIX based 

computing assets. 

• Automating processes to manage system security configuration baselines and 

track accepted risks/deviations throughout each system’s life cycle. This will 
IRS-47 

allow the IRS to better manage security configurations of systems and reduce the 

overall risk of the IRS computing assets. 

• Enhancing the redundancy and resiliency capabilities of the most critical IRS 

systems. These systems support tax processing and enable IRS to annually 

process over 235 million tax returns, issue $300 billion in refunds, and collect 

$2.7 trillion in revenue. Specifically, this funding would enhance disaster 

recovery capabilities for the IRS 18 mainframes, 5000+ servers and 260+ 

applications supporting mission critical tax administration processes including 

several key Critical Infrastructure Protection (CIP) assets that have been 

designated by the Department of the Treasury as those IRS systems that are 

essential to our Nation’s national security, economic stability and continuity of 

the U.S. Government. 
IRS-48 

Implement Return Review Program (RRP) 

 +$18,100,000 / +10 FTE

Initiative Summary 

This initiative requests an increase of $18.1 million and 10 FTE to fund the development 

and deployment of the first release of the Return Review Program (RRP) system. RRP 

delivers an integrated and unified system, enhancing IRS capabilities to detect, resolve, 

and prevent criminal and civil tax noncompliance. 

RRP will provide a flexible and scalable system to support a cross-functional approach to 

coordinate and address criminal and civil tax noncompliance. In addition, RRP allows 

analysis and support of case processing needs of both compliance and criminal 

investigative programs in criminal prosecution, revenue protection, accounts 

management, and taxpayer communications. The first release of the RRP System will 

replace the Electronic Fraud Detection System (EFDS) system. 

The current EFDS platform is obsolete and presents system limitations making it difficult 

to maintain, upgrade, or operate beyond 2011. Fundamental technology and design 

limitations also render it incapable of supporting any significant business changes. 

Without a system replacement investment, the IRS is vulnerable to future system failure 

resulting in the potential inability to detect $1-1.5 billion in fraudulent refunds each year. 

Initiative Detail 

RRP implementation will occur in three releases, and this initiative funds Release 1. 

Release 1 establishes the new Pre Refund business model and replaces the current EFDS 

platform, and will integrate the four current EFDS applications into a single web-based 

application. 

Release 2 will provide connectivity to IRS systems to support workflow, expand the user 

base and compare new taxpayer data. Release 3 will update Refund Crimes detection 

models, instruments (queries, scoring templates, and algorithms) and rules. 

Expected Benefits 

With the implementation of RRP, the IRS will: 

• Increase fraud detection, resolution and prevention; 

• Improve case tracking, analysis, and reporting; 

• Improve tracking, analysis, and reporting of performance measures; 

• Decrease the number of non-fraudulent refund claims frozen by IRS; 

• Coordinate fraud/error detection across the IRS; and 

• Replace the current EFDS platform by 2012. 
IRS-49 

Continue Development of Business Systems Modernization 

 +$22,607,000 / 0 FTE

Initiative Summary 

This initiative requests an additional $22.6 million in BSM for the continued 

development of the new taxpayer account database and the Modernized e-File platform. 

The IRS depends on the core tax administration systems to deliver its mission, and they 

require ongoing, long-term commitment to ensure that IRS maintains its world-class tax 

administration systems. This increase will result in a BSM request of $253.7 million. 

Initiative Detail 

The additional $22.6 million would be applied to the Customer Account Data Engine and 

Modernized e-File programs and activities described below. 

Customer Account Data Engine 

The IRS will continue the development of the Customer Account Data Engine, the new 

taxpayer account database that will serve as the central repository of tax account 

information for all individual taxpayers. In FY 2009, the IRS shifted its focus from 

concurrent development of a database and associated applications to a strategy that 

focuses on completion of the core taxpayer account database (Customer Account Data 

Engine). This approach will allow the IRS to accelerate data conversion to the new 

database while also addressing security, financial material weaknesses, and long-term 

architectural planning concerns. Thus, the Customer Account Data Engine, which 

includes AMS and elements of the previous CADE plan, is an integrated plan to deliver 

new capabilities in the coming years. This plan includes accelerating consolidation of the 

Individual MasterFile (IMF) and current CADE architectures, migration of IMF data into 

a daily processing architecture, and incorporation of enhanced security protocols and 

financial management controls. 

The Customer Account Data Engine will improve the IRS capability to respond quickly 

to changing business needs and accelerate business process changes. The complete data 

model and sole authority taxpayer account database is a critical step toward significantly 

enhanced compliance and service programs. It will also foster better collaboration 

through improved data exchange between the IRS and other Federal and State agencies. 

The Customer Account Data Engine will improve taxpayer service and tax compliance by 

making accurate and timely tax data available to taxpayers and the IRS and by providing 

faster refunds for all individual taxpayers. 

FY 2010 activities include continued development and integrated daily processing, data 

conversion to the new relational database, development and testing of applications to 

enhance viewing of database extracts, incorporation of tax law changes in the current 

CADE application, and stand-up of a program office. While the primary focus will be on 

database completion, targeted application development will begin on a common penalty 

and interest module to assure accurate and consistent calculations across applications and 
IRS-50 

to allow faster implementation of calculation changes, and modification of taxpayer 

notice processing. 

Modernized e-File (MeF) 

The IRS will continue development and deployment of the MeF web-based platform. 

MeF allows electronic filing tax and provides a single point of transmission for the 

electronic submission of federal corporate, non-profit, and partnership returns and the 

associated state returns for a limited number of states. MeF stores tax return data in a 

modernized Tax Return Database allowing IRS employees to see an entire tax return 

online. 

The IRS is implementing the Form 1040, U.S. Individual Income Tax Return, onto the 

MeF platform in three phases. 

Phase I began in FY 2007 with deployment scheduled in January 2010. Phase I consists 

of the Form 1040 and 21 of the most common forms and schedules used by 61 percent of 

the e-File population such as Itemized Deductions, Schedule B, Interest and Ordinary 

Dividends, and Schedule D, Capital Gains and Losses. 

Phase II began in FY 2009 and is scheduled to be implemented in January 2011. 

This Phase will enhance the deployment of disaster recovery capability delivered in 

Phase I and include tax law changes and continued code optimization. 

Phase III will begin in FY 2010 and is scheduled to deploy in January 2012. This phase 

will complete the implementation of the 1040 family of forms. After Phase III 

implementation, all Form 1040 taxpayers will be able to file electronically. 

Once forms are migrated to the MeF platform, tax preparers and taxpayers will realize the 

following benefits: 

• Extensive business rule validation and error checking to ensure the accuracy of 

the tax return 

• Sophisticated math error validation checking to increase the likelihood that the tax 

return will be successfully processed 

• Explanations for rejected returns 

• Ability to submit all necessary supporting documentation with the tax return 

• Faster response times to the external community. 

The IRS benefits from the continued migration of forms from the legacy e-File 

applications to MeF. MeF allows retirement of legacy e-File applications; eliminates the 

need to match paper tax return-related documents with e-filed tax returns; makes tax 

return data needed for compliance purposes available sooner to front-line enforcement 

staff; and includes tools and help-desk capabilities to provide more timely information to 

taxpayers on the status of their return. 
IRS-51 

2.2 – Operating Levels Table 

Dollars in Thousands 

Congressional FY 2009 

Appropriation Title: Internal Revenue Service FY 2009 Action FY 2009 Proposed FY 2010 % Change 

FY 2008 FY 2009 President's including Enacted Proposed Operating Request FY 2009 to 

Enacted1 ARRA Budget Rescission Level Reprogram. Level Level FY 2010

FTE 92,415 92,379 1,830 94,209 0 94,209 95,081 0.9%

Object Classification:

11.1 Full-Time Permanent Positions $5,551,676 $0 $5,711,664 $80,883 $5,792,547 $0 $5,792,547 $6,094,684 5.2%

11.3 Other than Full-Time Permanent Positions 393,358 0 433,088 20,189 453,277 0 453,277 422,984 -6.7%

11.5 Other Personnel Compensation 253,517 1,000 272,744 250 272,994 0 272,994 287,172 5.2%

11.8 Special Personal Services Payments 18,721 0 17,726 0 17,726 0 17,726 18,164 2.5%

11.9 Personnel Compensation (Total) $6,217,272 $1,000 $6,435,222 $101,322 $6,536,544 $0 $6,536,544 $6,823,004 4.4%

12.0 Personnel Benefits 1,543,743 0 1,624,404 25,881 1,650,285 0 1,650,285 1,788,144 8.4%

13.0 Benefits to Former Personnel 56,501 0 53,839 0 53,839 0 53,839 56,137 4.3%

21.0 Travel 223,501 0 250,003 3,070 253,073 0 253,073 260,693 3.0%

22.0 Transportation of Things 34,663 0 34,702 0 34,702 0 34,702 34,611 -0.3%

23.1 Rental Payments to GSA 610,203 0 653,829 0 653,829 0 653,829 668,154 2.2%

23.2 Rent Payments to Others 699 0 510 0 510 0 510 538 5.5%

23.3 Communications, Utilities, & Misc 485,088 2,000 414,628 0 414,628 0 414,628 453,214 9.3%

24.0 Printing & Reproduction 77,428 2,000 69,333 151 69,484 0 69,484 70,495 1.5%

25.1 Advisory & Assistance Services 159,337 0 150,077 1,309 151,386 0 151,386 190,158 25.6%

25.2 Other Services 712,226 73,000 720,388 20,269 740,657 0 740,657 740,872 0.0%

25.3 Purchase of Goods & Services from Govt. Accoun 162,496 0 104,981 52 105,033 0 105,033 120,050 14.3%

25.4 Operation & Maintenance of Facilities 162,385 0 181,503 0 181,503 0 181,503 185,552 2.2%

25.5 Research & Development Contracts 5,016 0 7,620 0 7,620 0 7,620 10,799 41.7%

25.6 Medical Care 12,582 0 10,764 0 10,764 0 10,764 11,187 3.9%

25.7 Operation & Maintenance of Equipment 77,090 0 79,745 0 79,745 0 79,745 81,485 2.2%

25.8 Subsistence & Support of Persons 6,649 0 6,910 0 6,910 0 6,910 7,063 2.2%

26.0 Supplies and Materials 77,221 2,000 73,384 0 73,384 0 73,384 71,892 -2.0%

31.0 Equipment 394,277 0 423,039 0 423,039 0 423,039 472,711 11.7%

32.0 Lands and Structures 55,724 0 48,139 0 48,139 0 48,139 48,682 1.1%

33.0 Investments & Loans 000 00000

41.0 Grants, Subsidies 13,040 0 12,502 9,035 21,537 0 21,537 22,606 5.0%

42.0 Insurance Claims & Indemn 2,370 0 1,114 0 1,114 0 1,114 2,866 157.3%

43.0 Interest and Dividends 000 00000

44.0 Refunds 000 00000

91.0 Unvouchered 5,008 0 4,873 0 4,873 0 4,873 5,087 4.4%

Total Budget Authority $11,094,519 $80,000 $11,361,509 $161,089 $11,522,598 $0 $11,522,598 $12,126,000 5.2%

Appropriations:

Taxpayer Services $2,191,085 $0 $2,150,000 $143,000 $2,293,000 $0 $2,293,000 $2,269,830 -1.0%

Enforcement 4,780,000 0 5,117,267 0 5,117,267 0 5,117,267 5,504,000 7.6%

Operations Support 3,841,109 0 3,856,172 10,839 3,867,011 0 3,867,011 4,082,984 5.6%

Business Systems Modernization 267,090 0 222,664 7,250 229,914 0 229,914 253,674 10.3%

Health Insurance Tax Credit Administration 15,235 80,000 15,406 0 15,406 0 15,406 15,512 0.7%

Total Budget Authority $11,094,519 $80,000 $11,361,509 $161,089 $11,522,598 $0 $11,522,598 $12,126,000 5.2%

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.

0.0%

0.0%

0.0%
IRS-52 

2.3 – Appropriation Detail Table 

Dollars in Thousands 

Internal Revenue Service % Change

FY 2008 FY 2008 FY 2009 FY 2010 FY 2009

Resources Available for Obligation Obligations Enacted1 Enacted2 Request to FY 2010

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Taxpayer Services 31,487 2,173,764 31,949 $2,191,085 32,652 $2,293,000 31,217 $2,269,830 0.00% -1.01%

Enforcement 46,431 4,777,120 47,596 4,780,000 48,939 5,117,267 51,200 5,504,000 4.62% 7.56%

Operations Support 12,079 3,767,583 12,495 3,841,109 12,270 3,867,011 12,316 4,082,984 0.37% 5.59%

Business Systems Modernization 347 170,576 358 267,090 333 229,914 333 253,674 0.00% 10.33%

Health Insurance Tax Credit Administration 10 15,223 17 15,235 15 15,406 15 15,512 0.00% 0.69%

Subtotal New Appropriated Resources 90,354 $10,904,266 92,415 $11,094,519 94,209 $11,522,598 95,081 $12,126,000 0.93% 5.24%

Other Resources:

Recoveries 4,646 4,646

Offsetting Collections - Reimbursable 1,038 140,207 1,038 140,207 1,077 143,612 1,088 147,101 1.02% 2.43%

Available multi-year/no-year funds 137,450 137,450 193,210 155,358 -19.59%

50% Carryover 19,061 19,061

Transfers In/Out 293 18,137 293 18,137

Mandatory Appropriations - User Fees 246,946 246,946 175,700 167,700 -4.55%

Subtotal Other Resources 1,331 $566,447 1,331 $566,447 1,077 $512,522 1,088 $470,159 1.02% -8.27%

Total Resources Available for Obligation 91,685 $11,470,713 93,746 $11,660,966 95,286 $12,035,120 96,169 $12,596,159 0.93% 4.66% 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 2 The FY 2009 Enacted column excludes the Recovery Act, Administration Expenses account, funded in the Treasury Departmental Offices ( $123M).
IRS-53 

2B – Appropriation Language and Explanation of Changes 

Appropriations Language Explanation of Changes 

DEPARTMENT OF THE TREASURY 

INTERNAL REVENUE SERVICE 

TAXPAYER SERVICES 

For necessary expenses of the Internal Revenue 

Service to provide taxpayer services, including prefiling assistance and education, filing and account 

services, taxpayer advocacy services, and other 

services as authorized by 5 U.S.C. 3109, at such rates 

as may be determined by the Commissioner, 

[$2,293,000,000]$2,269,830,000, of which not less 

than $5,100,000 shall be for the Tax Counseling for 

the Elderly Program, of which not less than 

$9,500,000 shall be available for low-income taxpayer 

clinic grants, [of which not less than $8,000,000, to 

remain available until September 30, 2010, shall be 

available for a Community Volunteer Income Tax 

Assistance matching grants demonstration program for 

tax return preparation assistance, and of which not less 

than $193,000,000 shall be available for operating 

expenses of the Taxpayer Advocate Service]of which 

not more than $8,000,000, to remain available until 

September 30, 2011, shall be available for Community 

Volunteer Tax Assistance matching grants. 

(Department of the Treasury Appropriations Act, 

2009.) 

ENFORCEMENT 

(including transfer of funds) 

For necessary expenses for tax enforcement activities

of the Internal Revenue Service to determine and 

collect owed taxes, to provide legal and litigation 

support, to conduct criminal investigations, to enforce 

criminal statutes related to violations of internal 

revenue laws and other financial crimes, [to]for the

purchase (for police-type use, not to exceed 850) and 

hire passenger motor vehicles (31 U.S.C. 1343(b)), 

and to provide other services as authorized by 5 

U.S.C. 3109, at such rates as may be determined by 

the Commissioner, [$5,117,267,000]$4,904,000,000,

of which not less than [$57,252,000]$59,206,000 shall 

be for the Interagency Crime and Drug Enforcement 

 

The IRS supports adequate 

funding for the Taxpayer 

Advocate Service. However, 

specifying the funding level in 

law prevents the Commissioner 

from proposing an operating 

plan that allocates resources in 

the best interest of taxpayers. 

The Budget Request for the 

Enforcement account is 

$5,504,000,000 including a 

program integrity allocation 

increase. 

In 2006, the IRS and the tax 

administrations of Australia, 

Canada, China, France, 

Germany, India, Japan, South 

Korea, and the United Kingdom 

established the Leeds Castle 

Group. This group meets 
IRS-54 

program; and of which not to exceed $126,500 shall 

be for official reception and representation expenses 

associated with hosting the Leeds Castle Meeting in 

the United States during 2010: Provided, That up to 

$10,000,000 may be transferred as necessary from this 

account to “Operations Support” solely for the 

purposes of the Interagency Crime and Drug 

Enforcement program: Provided further, That this 

transfer authority shall be in addition to any other 

transfer authority provided in this Act. In addition to 

amounts made available above, $600,000,000 shall 

become available for enhanced tax enforcement 

activities. (Department of the Treasury Appropriations 

Act, 2009.)

OPERATIONS SUPPORT

For necessary expenses of the Internal Revenue 

Service to support taxpayer services and enforcement 

programs, including rent payments; facilities services; 

printing; postage; physical security; headquarters and 

other IRS-wide administration activities; research and 

statistics of income; telecommunications; information 

technology development, enhancement, operations, 

maintenance, and security; the hire of passenger motor 

vehicles (31 U.S.C. 1343(b)); and other services as 

authorized by 5 U.S.C. 3109, at such rates as may be 

determined by the Commissioner; 

[$3,867,011,000]$4,082,984,000, of which up to 

$75,000,000 shall remain available until September 

30, [2010]2011, for information technology support; 

of which not to exceed $1,000,000 shall remain 

available until September 30, [2011]2012, for 

research; of which not [less than $2,000,000]to exceed

$1,750,000 shall be for the Internal Revenue Service 

Oversight Board; [and ]of which not to exceed 

$25,000 shall be for official reception and 

representation; and of which $290,000,000 shall be 

made available to support enhanced tax enforcement 

activities: Provided, That of the amounts provided 

under this heading, such sums as are necessary shall 

be available to fully support tax enforcement and 

annually to consider and discuss 

issues of global and national tax 

administration in their 

respective countries. In 2010 it 

is the IRS turn to host the 

meeting of the Leeds Castle 

Group. The IRS has never 

hosted it before. This meeting 

will consist primarily of foreign 

dignitaries and involve a great 

deal of protocol. This one-year 

request to spend $126,500 is 

necessary to build the 

relationships with these foreign 

governments, to further issues 

of global tax administration and 

to fulfill the IRS obligations to 

the other international tax 

organizations. 
IRS-55 

enhanced tax enforcement activities. (Department of 

the Treasury Appropriations Act, 2009.) 

BUSINESS SYSTEMS MODERNIZATION 

For necessary expenses of the Internal Revenue 

Service’s business systems modernization program, 

[$229,914,000]$253,674,000, to remain available until 

September 30, [2011]2012, for the capital asset 

acquisition of information technology systems, 

including management and related contractual costs of 

said acquisitions, including related Internal Revenue 

Service labor costs, and contractual costs associated 

with operations authorized by 5 U.S.C. 3109: 

Provided, That, with the exception of labor costs, none 

of these funds may be obligated until the Internal 

Revenue Service submits to the Committees on 

Appropriations[, and such Committees approve,] a 

plan for expenditure that: (1) meets the capital 

planning and investment control review requirements 

established by the Office of Management and Budget, 

including Circular A-11; (2) complies with the Internal 

Revenue Service’s enterprise architecture, including 

the modernization blueprint; (3) conforms with the 

Internal Revenue Service’s enterprise life cycle 

methodology; (4) is approved by the Internal Revenue 

Service, the Department of the Treasury, and the 

Office of Management and Budget; (5) has been 

[reviewed] received by the Government 

Accountability Office; and (6) complies with the 

acquisition rules, requirements, guidelines, and 

systems acquisition management practices of the 

Federal Government. 

(Department of the Treasury Appropriations Act, 

2009.) 

HEALTH INSURANCE TAX CREDIT 

ADMINISTRATION 

For expenses necessary to implement the health 

insurance tax credit included in the Trade Act of 2002 

(Public Law 107-210), [$15,406,000]$15,512,000. 

(Department of the Treasury Appropriations Act, 

2009.) 

ADMINISTRATIVE PROVISIONS - INTERNAL 

REVENUE SERVICE
IRS-56 

(including transfer of funds) 

Sec. 101. Not to exceed 5 percent of any 

appropriation made available in this Act to the Internal 

Revenue Service or not to exceed 3 percent of 

appropriations under the heading “Enforcement” may 

be transferred to any other Internal Revenue Service 

appropriation upon the advance [approval]notification

of the Committees on Appropriations. 

Sec. 102. The Internal Revenue Service shall maintain 

a training program to ensure that Internal Revenue 

Service employees are trained in taxpayers’ rights, in 

dealing courteously with taxpayers, and in crosscultural relations. 

Sec. 103. The Internal Revenue Service shall institute 

and enforce policies and procedures that will 

safeguard the confidentiality of taxpayer information. 

[Sec. 104. Funds made available by this or any other 

Act to the Internal Revenue Service shall be available 

for improved facilities and increased staffing to 

provide sufficient and effective 1-800 help line service 

for taxpayers. The Commissioner shall continue to 

make the improvement of the Internal Revenue 

Service 1-800 help line service a priority and allocate 

resources necessary to increase phone lines and staff to 

improve the Internal Revenue Service 1-800 help line 

service.] 

[Sec. 105. Of the funds made available by this Act to 

the Internal Revenue Service, not less than 

$6,997,000,000 shall be available only for tax 

enforcement. In addition, of the funds made available 

by this Act to the Internal Revenue Service, and 

subject to the same terms and conditions,

$490,000,000 shall be available for enhanced tax law 

enforcement.] 

[Sec. 106. None of the funds made available in this 

Act may be used to enter into, renew, extend, 

administer, implement, enforce, or provide oversight 

of any qualified tax collection contract (as defined in 

section 6306 of the Internal Revenue Code of 1986).] 

(Department of the Treasury Appropriations Act, 

2009.)

The Budget request includes 

additional resources for 

enhanced tax enforcement 

through a program integrity 

allocation adjustment. This is 

addressed by the appropriations 

language.
IRS-57 

2C – 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. 

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: 

• 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 offer-incompromise; and 

• Allow assessment of criminal restitution as tax. 
IRS-58 

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: 

• Require information reporting on expense payments relating to rental property; 

• Improve the foreign trust reporting penalty; 

• Apply the Federal Payment Levy Program to contractors before providing 

Collection Due Process; and 

• Clarify that vendor levy on ‘goods and services” would not exclude “property.” 
IRS-59 

Section 3 – Budget and Performance Plan 

Taxpayer Services 

Appropriation Description 

The Taxpayer Services appropriation 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. 

The Taxpayer Services Budget Request for FY 2010 is $2,269,830,000 in direct 

appropriations and 31,217 FTE. This is a decrease of $23,170,000 or 1.0 percent and 

1,435 FTE less than the FY 2009 enacted level of $2,293,000,000 and 32,652 FTE.

Congress provided direct funding to the Secretary of the Treasury for IRS 

implementation efforts on the Recovery Act tax provisions. These funds are not reflected 

in the IRS Taxpayer Services account.

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE1 Amount

FY 2009 Enacted 32,652 $2,293,000

Changes to Base:

Maintaining Current Levels $60,195

Pay Annualization 20,135

Pay Inflation Adjustment 38,828

Non-Pay Inflation Adjustment 2,463

Government-wide Reduction for Productivity Improvements (1,231)

GAO Audit Reimbursement Pursuant to P.L. 110-323

Efficiencies/Savings (1,504) ($90,918)

Increase e-File Savings (182) (8,227)

Non-Recur Stimulus Savings (1,322) (67,900)

Non-Recur FY09 Reduction Adjustment/Correspondence Inventory (13,439)

Non-Recur Pension Plan (1,352)

Reinvestment $2,025

Submission Processing Consolidation (Andover) 2,025

Subtotal Changes to Base (1,504) ($28,698)

Total FY 2010 Base 31,148 $2,264,302

Program Changes:

Enforcement Initiatives 69 $5,528

Reduce the Tax Gap Attributable to International Activities 42 3,124

Improve Reporting Compliance of SB/SE Taxpayers 3 267

Expand Document Matching for Business Taxpayers 16 1,425

Address Nonfiling/Underpayment and Collection Coverage 8 712

Subtotal FY 2010 Program Changes 69 $5,528

Total FY 2010 President's Budget Request 31,217 $2,269,830 1 Includes Technical FTE adjustments made since February 2008.
IRS-60 

2.2 – Operating Levels Table 

Dollars in Thousands 

Congressional FY 2009 

Appropriation Title: Taxpayer Services FY 2009 Action FY 2009 Proposed FY 2010 % Change 

FY 2008 FY 2009 President's including Enacted Proposed Operating Request FY 2009 to 

Enacted1 ARRA Budget Rescission Level Reprogram. Level Level FY 2010

FTE 31,949 30,822 1,830 32,652 32,652 31,217 -4.4%

Object Classification:

11.1 Full-Time Permanent Positions $1,235,929 $0 $1,206,453 $80,883 $1,287,336 $0 $1,287,336 $1,281,991 -0.4%

11.3 Other than Full-Time Permanent Positions 296,190 0 320,840 20,189 341,029 0 341,029 309,849 -9.1%

11.5 Other Personnel Compensation 89,700 0 84,003 250 84,253 0 84,253 88,518 5.1%

11.8 Special Personal Services Payments $000 00000

11.9 Personnel Compensation (Total) $1,621,819 $0 $1,611,296 $101,322 $1,712,618 $0 $1,712,618 $1,680,358 -1.9%

12.0 Personnel Benefits 321,329 0 318,294 25,881 344,175 0 344,175 350,315 1.8%

13.0 Benefits to Former Personnel 9,218 0 5,307 0 5,307 0 5,307 7,362 38.7%

21.0 Travel 33,999 0 28,866 3,070 31,936 0 31,936 31,763 -0.5%

22.0 Transportation of Things 6,034 0 6,501 0 6,501 0 6,501 6,541 0.6%

23.1 Rental Payments to GSA 000 00000

23.2 Rent Payments to Others 45 0 45 0 45 0 45 45 0.0%

23.3 Communications, Utilities, & Misc 3,735 0 4,612 0 4,612 0 4,612 3,709 -19.6%

24.0 Printing & Reproduction 9,901 0 8,948 151 9,099 0 9,099 9,009 -1.0%

25.1 Advisory & Assistance Services 40,029 0 24,477 1,309 25,786 0 25,786 28,951 12.3%

25.2 Other Services 46,865 0 100,428 2,180 102,608 0 102,608 100,853 -1.7%

25.3 Purchase of Goods & Services from Govt. Accoun 66,953 0 14,409 52 14,461 0 14,461 13,968 -3.4%

25.4 Operation & Maintenance of Facilities 53 0 94 0 94 0 94 95 1.1%

25.5 Research & Development Contracts 000 00000

25.6 Medical Care 000 00000

25.7 Operation & Maintenance of Equipment 0 0 671 0 671 0 671 675 0.6%

25.8 Subsistence & Support of Persons 1,081 0 1,485 0 1,485 0 1,485 1,494 0.6%

26.0 Supplies and Materials 15,563 0 11,601 0 11,601 0 11,601 11,432 -1.5%

31.0 Equipment 1,076 0 570 0 570 0 570 578 1.4%

32.0 Lands and Structures 26300 00000

33.0 Investments & Loans 000 00000

41.0 Grants, Subsidies 13,040 0 12,315 9,035 21,350 0 21,350 22,601 5.9%

42.0 Insurance Claims & Indemn 82 0 81 0 81 0 81 81 0.0%

43.0 Interest and Dividends 000 00000

44.0 Refunds 000 00000

91.0 Unvouchered 000 00000

Total Budget Authority $2,191,085 $0 $2,150,000 $143,000 $2,293,000 $0 $2,293,000 $2,269,830 -1.0%

Budget Activities:

Pre-filing Taxpayer Assistance & Education $645,253 $0 $617,326 $43,674 $661,000 $0 $661,000 $676,063 2.3%

Filing & Account Services 1,545,832 0 1,532,674 99,326 1,632,000 0 1,632,000 1,593,767 -2.3%

Total Budget Authority $2,191,085 $0 $2,150,000 $143,000 $2,293,000 $0 $2,293,000 $2,269,830 -1.0%

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.

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%
IRS-61 

2.3 – Appropriation Detail Table 

Dollars in Thousands 

Taxpayer Services % Change

FY 2008 FY 2008 FY 2009 FY 2010 FY 2009

Resources Available for Obligation Obligations Enacted1 Enacted2 Request to FY 2010

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Pre-Filing Taxpayer Assistance and Education 5,995 $628,286 6,030 $645,253 6,169 $661,000 6,149 $676,063 -0.32% 2.28%

Filing and Account Services 25,492 1,545,478 25,919 1,545,832 26,483 1,632,000 25,068 1,593,767 -5.34% -2.34%

Subtotal New Appropriated Resources 31,487 $2,173,764 31,949 $2,191,085 32,652 $2,293,000 31,217 $2,269,830 -4.39% -1.01%

Other Resources:

Recoveries 794 794

Offsetting Collections - Reimbursable 799 36,811 799 36,811 833 37,890 839 39,000 0.72% 2.93%

Available multi-year/no-year funds 6,286 6,286 14,137 −

50% Carryover

Transfers In/Out 293 22,500 293 22,500

Mandatory Appropriations - User Fees 151,936 151,936 127,000 127,000 0.00%

Subtotal Other Resources 1,092 $218,327 1,092 $218,327 833 $179,027 839 $166,000 0.72% -7.28%

Total Resources Available for Obligation 32,579 $2,392,091 33,041 $2,409,412 33,485 $2,472,027 32,056 $2,435,830 -4.27% -1.46% 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 2 The FY 2009 Enacted column excludes the Recovery Act, Administration Expenses account, funded in the Treasury Departmental Offices ( $123M).

3A – Pre-Filing Taxpayer Assistance and Education ($676,063,000 in direct 

appropriation, 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. This includes the following program activities: 

• Pre-Filing Services Management administers pre-filing, taxpayer assistance, and 

education programs. 

• Taxpayer Communication and Education researches customer needs; prepares tax 

forms and publications; develops and manages educational programs; establishes 

partnerships with stakeholder groups; and disseminates tax information to 

taxpayers and the general public through a variety of media, including 

publications and mailings, websites, broadcasting, and advertising. 

• Media and Publications develops and produces notices, forms, and publications 

for printed and electronic tax materials; and provides media production services to 

taxpayers. 

• Taxpayer Advocacy provides advocate services to taxpayers by identifying the 

underlying causes of taxpayer problems and participating in the development of 

systematic and/or procedural remedies. 

• Account Management and Assistance – Field Assistance provides face-to-face 

assistance, education, and compliance services to taxpayers. It includes return 

preparation, answering tax questions, resolving account and notice inquiries, and 

supplying forms and publications to taxpayers. 

• Taxpayer Advocate Case Processing provides advocate services to taxpayers to 

resolve taxpayers’ problems through prompt identification, referral, and 

settlement. 
IRS-62 

• National Distribution Center processes orders for IRS forms and publications 

received from individual taxpayers, tax practitioners, and IRS tax return 

preparation partners. 

3.2.1 – Budget and Performance Plan 

Dollars in Thousands 

Pre-Filing Taxpayer Assistance & Education Budget Activity

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $559,249 $573,685 $628,286 $661,000 $676,063

Reimbursable Resources 1,038 843 774 796 819

Mandatory Appropriations - User Fees 1,201 12,827 18,700 18,700

Total Resources $560,287 $575,729 $641,887 $680,496 $695,582

Budget Activity Total $560,287 $575,729 $641,887 $680,496 $695,582

Pre-Filing Taxpayer Assistance & Education Budget Activity FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Measure Actual Actual Actual Target Target

Timeliness of Critical Filing Season Tax Products to the Public (Ot) 83.0% 83.5% 92.4% 92.0% 93.0%

Timeliness of Critical Other Tax Products to the Public (Ot) 61.2% 84.0% 89.5% 89.0% 90.0%

Taxpayer Self Assistance Rate (E) (L) 46.8% 49.5% 66.8% 64.7% 57.3%

Percent of Eligible Taxpayers Who File for EITC (Oe) * * * 75-80% 75-80%

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

*The methodology for estimating the eligibility rate is being revised. Data not available.

Description of Performance 

Improved service options for taxpayers and simplification of the tax process are key 

objectives under the IRS Strategic Goal to improve service to make voluntary compliance 

easier. Helping taxpayers understand their tax reporting and payment obligations 

remains a vital part of maintaining public confidence in administering the tax laws. The 

IRS enhanced its outreach and educational services through partnerships with the public 

to increase understanding and compliance with the tax law. Free tax seminars were 

offered to groups of people sharing common tax interests. 

In addition, developing and maintaining relationships with IRS stakeholders and partners 

in tax administration has become a key strategy in developing and distributing tax 

information to IRS customers. By augmenting and opening these avenues of 

communication, the IRS is able to identify and respond quickly to emerging issues in tax 

compliance and to provide education and outreach to a wider population of taxpayers to 

improve compliance. 

The IRS collaborates with organizations such as state taxing authorities and volunteer 

groups to serve taxpayer needs. Through its approximately 12,000 Volunteer Income 

Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites, the IRS provided 

free tax assistance to the elderly, disabled, and limited English proficient individuals and 

families. More than 78,000 volunteers located at these sites filed more than 3.5 million 

returns, a 33 percent increase over FY 2007. 
IRS-63 

Despite late enactment of tax legislation modifying the Alternative Minimum Tax (AMT) 

and implementation of the Economic Stimulus Act of 2008 (Stimulus) over 92 percent of 

the critical filing season tax products and 89.5 percent of critical other (business) tax 

products were delivered to the public on time in FY 2008. In addition, the FY 2008 

taxpayer self-assistance rate was 66.8 percent, exceeding the target by 30 percent. The 

implementation of improvements to the IRS website also contributed to the increase in 

usage. The IRS also continues efforts to simplify its tax forms and publications to make 

them more user-friendly, with the ultimate goal to provide all of its published products in 

electronic format. 

The IRS also reached out to those taxpayers eligible for the Earned Income Tax Credit 

(EITC), implementing a vigorous multi-dimensional outreach strategy that included: 

• Creating EITC products and services designed to target underserved groups such 

as rural taxpayers, childless workers, and limited English proficient filers; 

• Conducting a second EITC Awareness Day that generated extensive national and 

local media coverage designed to expand education of the public on EITC and 

increase the participation of eligible taxpayers; and 

• Increasing free EITC return preparation by 25 percent and as a result, electronic 

filing of EITC returns increased by almost 18 percent over 2007. 

The IRS launched its new Facilitated Self-Assistance Research Project (FSRP) in 

FY 2008. The project allows taxpayers to access IRS.gov at Taxpayer Assistance 

Centers. Approximately 2,400 customers used FSRP at the 15 pilot sites. An additional 

35 sites will be launched during FY 2009. 

Through its Low Income Taxpayer Clinic (LITC) grant program, the IRS awarded 

matching grants of up to $100,000 per year to develop, expand or maintain low-income 

taxpayer clinics. In FY 2008, the IRS awarded nine million dollars in LITC grants to 

over 150 organizations in 50 states, the District of Columbia, Puerto Rico, and Guam. 

The IRS continued to improve service through automation, outreach, and taxpayer 

education. Changes to the AMT and passage of the Stimulus program required the IRS to 

develop new web applications, including Stimulus calculators and “Where’s My Stimulus 

Payment?” to provide timely information to taxpayers. 

The IRS launched an electronic Publication 17, Your Federal Income Tax, on IRS.gov; 

and implemented “My IRS Account,” a self-service internet application that allows 

taxpayers access to information about their past filings. In FY 2008, taxpayers used 

IRS.gov in record numbers to get current information: 

• Over 2.2 billion web pages were viewed, an increase of 63 percent; 

• Over 38.7 million taxpayers used “Where’s My Stimulus Payment?” to check on 

the status of their payment; 

• More than 39.2 million taxpayers used “Where’s My Refund?,” an increase of 

22 percent; and 

• Over 317,000 taxpayers used the new Spanish version of “Where’s my Refund?” 
IRS-64 

3A – Filing and Account Services ($1,593,767,000 in direct appropriation, an 

estimated $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. This includes the following program activities: 

• Filing and Account Services Management administers filing and account services 

programs. 

• Submission Processing processes paper and electronically-submitted tax returns 

and supplemental documents, accounts for tax revenue, processes information 

documents, and issues refunds and tax notices. 

• Account Management and Assistance – Electronic Correspondence Assistance 

provides education and assistance to taxpayers through telephone, paper, and 

internet correspondence to resolve account and notice inquiries. 

• Electronic Products and Services Support (EPSS) provides centralized operations 

and support capabilities for the IRS suite of electronic products. EPSS includes 

e-help desk, technology support, and operations support. 

• Electronic Tax Administration (ETA) markets and administers electronic tax 

administration products and services. 

• Pre-Refund provides coordination support for the pre-refund activities to ensure 

timely issuance of refunds and credits that are legally due to taxpayers. The prerefund activity is now a part of the ETA office. 

• Files Most Efficient Organization stores the administrative files and the most 

recent tax returns in-process that are most likely to be requested for research by 

various IRS organizations until they are forwarded to the federal records centers. 

 
IRS-65 

3.2.2 – Budget and Performance Plan 

Dollars in Thousands 

Filing and Account Services 

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $1,568,209 $1,559,779 $1,545,478 $1,632,000 $1,593,767

Reimbursable Resources 24,242 20,081 36,037 37,094 38,181

Mandatory Appropriations - User Fees 63,458 139,109 108,300 108,300

Total Resources $1,592,451 $1,643,318 $1,720,624 $1,777,394 $1,740,248

Budget Activity Total $1,592,451 $1,643,318 $1,720,624 $1,777,394 $1,740,248

Filing and Account Services FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Measures Actual Actual Actual Target Target

Percent Individual Returns Processed Electronically (Oe) (L) 54.1% 57.1% 57.6% 64.0% 67.3%

Percent of Business Returns Processed Electronically (Oe) (L) 16.6% 19.1% 19.4% 21.6% 23.4%

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

Customer Accuracy - Customer Accounts (Phones) (Ot) 93.2% 93.4% 93.7% 93.5% 93.7%

Customer Contacts Resolved per Staff year (E) 7,414 7,648 12,634 10,386 8,919

Customer Service Representative (CSR) Level of Service (Oe) (L) 82.0% 82.1% 52.8% 70.0% 71.2%

Refund Timeliness - Individual (paper) (Ot) 99.3% 98.9% 99.1% 98.4% 98.4%

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

Description of Performance 

The 2008 filing season was challenging because of late enactment of the AMT legislation 

and implementation of the Stimulus program. Despite these challenges, the IRS 

delivered another successful filing season. During the 2008 filing season, the IRS: 

• Processed 155.6 million individual returns, an increase of 11 percent, including 

returns filed solely to claim a Stimulus payment; 

• Issued 107.6 million refunds totaling $369 billion; 

• Answered over 40.4 million calls, an increase of 21 percent, due to a large 

number of taxpayer inquiries about their Stimulus checks; 

• Completed 52 million automated calls, an increase of more than 123 percent; 

• Maintained account and tax law accuracy rates of greater than 90 percent; 

• Expanded partnerships with nonprofit and community organizations, opened 

approximately 12,000 free tax preparation sites nationwide; 

• Prepared 3.5 million returns for low-income and elderly taxpayers at free tax 

preparation sites, an increase of 33 percent; and 

• Prepared over 575,000 returns at IRS Taxpayer Assistance Centers (TACs), a 

42 percent increase over last year. 

The IRS saw an increase in electronic filing over 2007. During the 2008 filing season: 

• A total of 89.6 million individual returns were filed electronically, an increase of 

12 percent; 

• Exclusive of those who filed solely to claim a Stimulus payment, individual 

returns filed electronically surpassed 63 percent; 

• Business returns filed electronically reached 19.4 percent; 
IRS-66 

• Home-computer filing increased to 26.8 million returns, a 20 percent increase 

over 2007; and 

• Tax professional use of e-filing increased to 61.8 million returns, an increase of 

8 percent over 2007. 

Over 4.7 million tax returns were prepared and submitted through the IRS Free File in 

FY 2008, a 23 percent increase over FY 2007. Free File continues to be a popular option 

for taxpayers who qualify. A recent survey showed 96 percent of those who used the 

program found it easy to use, 98 percent said they would recommend Free File to a friend 

or family member, and 95 percent said they would use it again. 
IRS-67 

Enforcement 

Appropriation Description 

The Enforcement appropriation 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. 

The Enforcement Budget Request for FY 2010 is $5,504,000,000 in direct appropriations 

and 51,200 FTE. This is an increase of $386,733,000 or 7.6 percent and 2,261 FTE over 

the FY 2009 enacted level of $5,117,267,000 and 48,939 FTE. The 7.6 percent increase 

from the FY 2009 enacted level includes funding to support tax enforcement activities 

funded by an allocation adjustment. 

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE1 Amount

FY 2009 Enacted 48,939 $5,117,267

Changes to Base:

Maintaining Current Levels $133,815

Pay Annualization 46,489

Pay Inflation Adjustment 85,486

Non-Pay Inflation Adjustment 3,680

Government-wide Reduction for Productivity Improvements (1,840)

GAO Audit Reimbursement Pursuant to P.L. 110-323

Subtotal Changes to Base $133,815

Total FY 2010 Base 48,939 $5,251,082

Program Changes:

Enforcement Initiatives 2,261 $252,918

Reduce the Tax Gap Attributable to International Activities 742 104,113

Improve Reporting Compliance of SB/SE Taxpayers 752 75,114

Expand Document Matching for Business Taxpayers 284 17,955

Address Nonfiling/Underpayment and Collection Coverage 483 55,736

Subtotal FY 2010 Program Changes 2,261 $252,918

Total FY 2010 President's Budget Request 51,200 $5,504,000 1 Includes Technical FTE adjustments made since February 2008.
IRS-68 

2.2 – Operating Levels Table 

Dollars in Thousands 

Congressional FY 2009 

Appropriation Title: Enforcement FY 2009 Action FY 2009 Proposed FY 2010 % Change 

FY 2008 FY 2009 President's including Enacted Proposed Operating Request FY 2009 to 

Enacted1 ARRA Budget Rescission Level Reprogram. Level Level FY 2010

FTE 47,596 48,939 48,939 48,939 51,200 4.6%

Object Classification:

11.1 Full-Time Permanent Positions $3,306,610 $0 $3,490,824 $0 $3,490,824 $0 $3,490,824 $3,732,481 6.9%

11.3 Other than Full-Time Permanent Positions 83,216 0 89,150 0 89,150 0 89,150 89,273 0.1%

11.5 Other Personnel Compensation 127,562 0 156,069 0 156,069 0 156,069 166,157 6.5%

11.8 Special Personal Services Payments 18,721 0 17,726 0 17,726 0 17,726 18,164 2.5%

11.9 Personnel Compensation (Total) $3,536,109 $0 $3,753,769 $0 $3,753,769 $0 $3,753,769 $4,006,075 6.7%

12.0 Personnel Benefits 909,663 0 987,447 0 987,447 0 987,447 1,092,263 10.6%

13.0 Benefits to Former Personnel 210 0 0 00000

21.0 Travel 143,233 0 184,360 0 184,360 0 184,360 190,851 3.5%

22.0 Transportation of Things 7,107 0 6,731 0 6,731 0 6,731 6,792 0.9%

23.1 Rental Payments to GSA 000 00000

23.2 Rent Payments to Others 461 0 459 0 459 0 459 486 5.9%

23.3 Communications, Utilities, & Misc 6,217 0 4,808 0 4,808 0 4,808 3,978 -17.3%

24.0 Printing & Reproduction 6,456 0 5,589 0 5,589 0 5,589 6,432 15.1%

25.1 Advisory & Assistance Services 29,017 0 32,486 0 32,486 0 32,486 33,770 4.0%

25.2 Other Services 53,754 0 64,849 0 64,849 0 64,849 84,121 29.7%

25.3 Purchase of Goods & Services from Govt. Accoun 39,281 0 26,734 0 26,734 0 26,734 27,914 4.4%

25.4 Operation & Maintenance of Facilities 163 0 78 0 78 0 78 194 148.7%

25.5 Research & Development Contracts 2,908 0 2,960 0 2,960 0 2,960 2,974 0.5%

25.6 Medical Care 77 0 0 0 0 0 077 −

25.7 Operation & Maintenance of Equipment 1,541 0 1,745 0 1,745 0 1,745 2,048 17.4%

25.8 Subsistence & Support of Persons 4,286 0 4,121 0 4,121 0 4,121 4,313 4.7%

26.0 Supplies and Materials 27,722 0 30,761 0 30,761 0 30,761 29,053 -5.6%

31.0 Equipment 4,904 0 4,999 0 4,999 0 4,999 5,506 10.1%

32.0 Lands and Structures 000 00000

33.0 Investments & Loans 000 00000

41.0 Grants, Subsidies 0 0 187 0 187 0 187 5 -97.3%

42.0 Insurance Claims & Indemn 1,883 0 311 0 311 0 311 2,061 562.7%

43.0 Interest and Dividends 000 00000

44.0 Refunds 000 00000

91.0 Unvouchered 5,008 0 4,873 0 4,873 0 4,873 5,087 4.4%

Total Budget Authority $4,780,000 $0 $5,117,267 $0 $5,117,267 $0 $5,117,267 $5,504,000 7.6%

Budget Activities:

Investigation $592,906 $0 $603,466 0 $603,466 $0 $603,466 $637,694 5.7%

Enforcement 4,037,812 0 4,363,826 0 4,363,826 0 4,363,826 4,706,350 7.8%

Regulatory 149,282 0 149,975 0 149,975 0 149,975 159,956 6.7%

Total Budget Authority $4,780,000 $0 $5,117,267 $0 $5,117,267 $0 $5,117,267 $5,504,000 7.6%

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.

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%
IRS-69 

2.3 – Appropriation Detail Table 

Dollars in Thousands 

Enforcement

FY 2008 FY 2008 FY 2009 FY 2010 FY 2009

Resources Available for Obligation Obligations Enacted1 Request

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Investigations 4,162 $601,436 4,279 $592,906 4,241 $603,466 4,251 $637,694 0.24% 5.67%

Exam and Collections 41,094 4,030,648 42,098 4,037,812 43,472 4,363,826 45,695 4,706,350 5.11% 7.85%

Regulatory 1,175 145,036 1,219 149,282 1,226 149,975 1,254 159,956 2.28% 6.66%

Subtotal New Appropriated Resources 46,431 $4,777,120 47,596 $4,780,000 48,939 $5,117,267 51,200 $5,504,000 4.62% 7.56%

Other Resources:

Recoveries 1 1

Offsetting Collections - Reimbursable 124 58,141 124 58,141 127 59,454 130 60,797 2.36% 2.26%

Available multi-year/no-year funds 5,731 5,731 4,382 358 -91.83%

50% Carryover

Transfers In/Out 137 137

Mandatory Appropriations - User Fees 12,847 12,847 15,800 7,800 0.00%

Subtotal Other Resources 124 $76,857 124 $76,857 127 $79,636 130 $68,955 2.36% -13.41%

Total Resources Available for Obligation 46,555 $4,853,977 47,720 $4,856,857 49,066 $5,196,903 51,330 $5,572,955 4.61% 7.24%

% Change

Enacted to FY 2010

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 

3A – Investigations $637,694,000 in direct appropriation and an estimated $51,553,000 

from reimbursable programs): This budget activity funds the IRS Criminal Investigation 

(CI) programs that explore potential criminal violations of tax laws, enforce criminal 

statutes relating to violations of tax laws, and recommend prosecution as warranted. This 

includes the following program activities: 

• General Management and Administration supports the headquarters management 

activities of strategic planning, communications, finance, and human resources for 

CI activities. 

• Criminal Investigations supports the enforcement of criminal statutes relating to 

violations of internal revenue laws and other financial crimes. CI investigates 

cases of suspected intent to defraud that involve both legal and illegal sources of 

income and recommends prosecution as warranted. This activity also includes the 

investigation and prosecution of tax and money-laundering violations associated 

with narcotics organizations. 

• Criminal Tax Legal Support provides staffing, training, and direct support to 

Counsel and CI. 
IRS-70 

3.2.3 – Budget and Performance Plan 

Dollars in Thousands 

Investigations Budget Activity

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $599,878 $573,469 $601,436 $603,466 $637,694

Reimbursable Resources 33,306 32,441 49,404 50,467 51,553

Mandatory Appropriations - User Fees

Total Resources $633,184 $605,910 $650,840 $653,933 $689,247

Budget Activity Total $633,184 $605,910 $650,840 $653,933 $689,247

Investigations Budget Activity FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Measure Actual Actual Actual Target Target

Criminal Investigations Completed (Ot) (L) 4,157 4,269 4,044 3,900 3,900

Number of Convictions (Oe) (L) 2,019 2,155 2,144 2,135 2,135

Conviction Rate (Oe) (L) 91.5% 90.2% 92.3% 92.0% 92.0%

Conviction Efficiency Rate ($) (E) (L) $328,750 $301,788 $315,751 $317,100 $321,400

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

Description of Performance 

Enforcement of criminal statutes is an integral component of IRS efforts to enhance 

voluntary compliance and to enforce the tax laws. The IRS vigorously investigates 

egregious tax, money laundering, and other financial crimes that adversely affect tax 

administration. 

Improved case development and selection methods, coupled with heightened fraud 

awareness, resulted in successful prosecution of taxpayers involved in significant abusive 

tax schemes, high-income nonfiler, employment tax evasion cases, and other flagrant 

forms of tax evasion. Using its unique statutory jurisdiction and financial expertise, the 

IRS made significant contributions to important national law enforcement priorities. 

Performance levels for the criminal investigation program remained high in FY 2008 as 

the IRS: 

• Completed 4,044 criminal investigations; 

• Achieved a conviction rate of 92.3 percent; 

• Maintained a Department of Justice acceptance rate of 93.6 percent and a U.S. 

Attorney acceptance rate of 89.2 percent, which compares favorably with other 

federal law enforcement agencies; 

• Obtained 2,144 convictions, which exceeded the FY 2008 target;

• Automated the Questionable Refund Program (QRP) processes, which produced a 

16 percent labor savings through centralization, and reduced the 10 Fraud 

Detection Centers to three centers; 

• Identified through the QRP process more than 337,000 potentially fraudulent 

returns that claimed more than $1.7 billion in total refunds; 

• Stopped more than $1.5 billion in fraudulent claims with an average refund of 

$5,303 through the QRP process; and 
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• Initiated 230 QRP investigations. 

3A – Exam and Collections ($4,706,350,000 in direct appropriation, an estimated 

$8,783,000 from reimbursable programs, and an estimated $7,800,000 from user fees): 

This budget activity funds programs that enforce tax laws through examination and 

collection programs that ensure proper payment and tax reporting. This budget activity 

also supports appeals and litigation activities associated with exam and collection. This 

includes the following program activities: 

• Compliance Services Management supports management associated with 

compliance program activities. 

• Payment Compliance – Correspondence Collection supports IRS collection 

activities by initiating contact and collecting delinquent taxpayer liabilities 

through written notices and other means. 

• Automated Collections and Support supports the IRS centralized Automated 

Collection System (ACS) by initiating contact and collecting delinquent taxpayer 

liabilities through automated means. 

• Payment Compliance – Field Collection conducts field investigations and 

collection efforts associated with delinquent taxpayer and business entity 

liabilities, including direct taxpayer contact and outreach programs to protect the 

interest of the federal government in delinquent tax liability situations. 

• Tax Reporting Compliance – Document Matching supports the Automated 

Underreporter (AUR), Combined Annual Wage Reporting (CAWR), Federal 

Unemployment Tax Act (FUTA), and other Document Matching Programs. 

• Tax Reporting Compliance – Electronic/Correspondence Exam initiates written 

correspondence with taxpayers related to tax issues arising from claims on their 

tax return. 

• Tax Reporting Compliance – Field Exam compares taxpayer income levels and 

corresponding tax liabilities to ensure accuracy of taxpayer returns. 

• Fraud/Bank Secrecy Act enforces the anti-money laundering provisions of the 

Bank Secrecy Act of 1970 (BSA), and the USA Patriot Act of 2001. It examines 

non-bank financial institutions for compliance with these laws, receives and 

processes more than 15 million financial reports annually, and manages a 

centralized database of that information for the Financial Crimes Enforcement 

Network (FinCEN). The Fraud program follows the “money trail” to support the 

criminal investigation of tax evasion operations. Fraud Technical Advisors and 

Revenue Agents provide investigative leads and referrals to federal, state, and 

local law enforcement agencies. 

• Appeals provides an administrative review process that provides a channel for 

impartial case settlement before a case is docketed in a court of law. 

• Litigation provides legal support for the IRS in litigation of cases, including 

interpretation of the tax law. 

• Specialty Programs – Exams examines federal tax returns of businesses and 

individuals responsible for the filing and payment of employment, excise, estate, 

and gift taxes. This specialty program also oversees IRS international exam 

programs involving U.S. citizens residing abroad, non-resident aliens, expatriates, 
IRS-72 

and examinations involving other international issues (e.g. Foreign Tax Credit and 

Foreign Earned Income Exclusion). 

• Specialty Programs – Collection supports international field collection efforts 

associated with delinquent taxpayer and business entity liabilities from U.S. 

citizens residing abroad, non-resident aliens, expatriates, and those involving 

other international issues (e.g. Foreign Tax Credit and Foreign Earned Income 

Exclusion). 

• Unit General Management and Administration provides staffing, training, and 

direct support for headquarters management activities of strategic planning, 

communication and liaison, finance, human resources, EEO and diversity, 

business system planning, and embedded training. 

• Whistleblower provides staffing, training, and direct support to process, assess, 

and analyze tips from individuals who identify tax problems in the course of their 

daily personal business, regardless of where encountered (including the 

workplace). 

• Communications and Liaison coordinates local government and liaison 

relationships; manages congressional, state, and national stakeholder relationships 

and issues; coordinates crosscutting issues including audit management and 

legislative implementation; manages national media contacts and local media 

relationships; and ensures IRS-wide compliance with disclosure and privacy laws. 
IRS-73 

3.2.4 – Budget and Performance Plan 

Dollars in Thousands 

Exam and Collections

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $3,925,839 $3,932,874 $4,030,648 $4,363,826 $4,706,350

Reimbursable Resources 9,851 8,764 8,302 8,539 8,783

Mandatory Appropriations - User Fees 5,452 12,679 15,800 7,800

Total Resources $3,935,690 $3,947,090 $4,051,629 $4,388,165 $4,722,933

Budget Activity Total $3,935,690 $3,947,090 $4,051,629 $4,388,165 $4,722,933

Exam and Collections Budget Activity FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Measure Actual Actual Actual Target Target

Examination Coverage - Individual (Oe) (L) 1.0% 1.0% 1.01% 1.0% 1.0%

Field Exam Embedded Quality (Oe) (L) 85.9% 85.9% 86.0% 87.0% 87.1%

Office Exam Embedded Quality (Oe) (L) 88.2% 89.4% 90.0% 90.0% 90.9%

Examination Quality (LMSB) - Industry (Oe) (L) 85.0% 87.0% 88.0% 88.0% 89.0%

Examination Quality (LMSB) - Coordinated Industry (Oe) (L) 96.0% 96.0% 97.0% 96.0% 96.0%

Examination Coverage - Business (Oe) (L) 7.3% 6.8% 6.1% 5.8% 5.1%

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

AUR Coverage (E) (L) 2.4% 2.5% 2.55% 2.5% 3.1%

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

Collection Coverage - Units (Ot) (L) 54.0% 54.0% 55.2% 54.4% 54.6%

Collection Efficiency - Units (E) (L) 1,677 1,828 1,926 1,872 1,776

Field Collection Embedded Quality (Ot) (L) 84.2% 84.0% 79.0% 80.0% 83.0%

Automated Collection System (ACS) Accuracy (Oe) 91.0% 92.9% 95.3% 92.0% 93.5%

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

Description of Performance 

Targeting the tax gap remained a top IRS priority for FY 2008 and will continue to be a 

top IRS priority in the future. In FY 2008 total enforcement revenue was $56.4 billion, a 

65 percent increase over 2002. The improvements in enforcement performance resulted 

primarily from the focus on corrosive activities of corporate and high-income violators of 

the tax code. Targeting these high-risk categories improves IRS efficiency, reduces the 

burden on compliant taxpayers, and focuses enforcement presence where it is most 

needed. 

In FY 2008, the IRS enhanced analytics in critical programs, improved workload 

identification and selection methods, and implemented systems that target high-risk 

cases. The IRS made improvements over FY 2007 in key program areas. Specifically, 

the IRS: 

• Increased high-income taxpayer audits almost 16 percent; 

• Increased small business audits 3 percent; 

• Audited over 9,400 large corporations for the fifth consecutive year, a significant 

achievement given the size (assets greater than $10 million) and complexity of the 

corporate entities; 

• Increased collection case closures 1.4 percent; 

• Increased tax-exempt and government entities compliance contacts 6 percent; and 
IRS-74 

• Increased Automated Underreporter (AUR) contact closures by almost 4 percent 

and dollars collected through AUR and information return processing by 

22 percent. 

The IRS also continued reengineering the examination and collection processes to expand 

coverage, reduce processing time, and increase yield. The IRS implemented 

technological enhancements to legacy systems to augment productivity and efficiency 

gains. Significant improvements made in FY 2008 include: 

• Expansion of the Reasonable Cause Assistant (RCA) for collection field 

employees to improve the accuracy and consistency of penalty-relief 

determinations for individual and business taxpayers. RCA expedites the 

reasonable cause determination process by creating an automated request and 

approval process. 

• An upgrade to the Issue Management System (IMS) that provides a central 

repository for issue identification and tracking. The upgrade allows data 

collection for use in the development and evaluation of performance measures. 

The upgrade supported more than 5,000 revenue agents. 

• Productivity increases in the AUR notice process that produced a 26 percent 

increase in assessments from $5.1 billion to $6.4 billion, and a 21 percent increase 

in assessment dollars per case compared to last year. 

• Enhancement of the identification and predictability of productive assessments in 

the Correspondence Examination Program (CEP), which contributed to a 

41 percent increase in assessments to $2.6 billion. 

• Implementation of an Industry Issue Focus (IIF) process that places compliance 

issues into three tiers based on strategic impact and importance to respond to 

changes in business practices that create compliance risks resulting in $6.7 billion 

in additional taxable income not previously reported; for Top Tier issue cases 

currently under examination, there is potential for an additional $4.6 billion in 

unreported taxable income. 

 

3A – Regulatory ($159,956,000 in direct appropriation 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; support for taxpayers in the areas of pre-filing agreements, 

determination letters, and advance pricing agreements. This includes the following 

program activities: 

• Tax Law Interpretation and Published Guidance interprets the tax law through 

published guidance, technical advice, and other technical legal services. 

• General Legal Services provides advice to the IRS on non-tax legal issues, 

including procurement, personnel, labor relations, equal employment opportunity, 

fiscal law, tort claims and damages, ethics, and conflict of interest. 

• Rulings and Agreements applies the tax law to specific taxpayers in the form of 

pre-filing agreements, determination letters, advance pricing agreements, and 

other pre-filing determinations and advice. 
IRS-75 

• Office of Professional Responsibility identifies, communicates, and enforces 

Treasury Circular 230 standards of competence, integrity, and conduct of those 

who represent taxpayers before the IRS including attorneys, Certified Public 

Accountants (CPAs), enrolled agents, enrolled actuaries and appraisers, and other 

professionals. 

3.2.5 – Budget and Performance Plan 

Dollars in Thousands 

Regulatory

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $150,115 $146,213 $145,036 $149,975 $159,956

Reimbursable Resources 151 255 435 448 461

Mandatory Appropriations - User Fees 168

Total Resources $150,266 $146,468 $145,639 $150,423 $160,417

Budget Activity Total $150,266 $146,468 $145,639 $150,423 $160,417

Regulatory Budget Activity FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Measure Actual Actual Actual Target Target

TE/GE Determination Case Closures (Ot) 108,462 109,408 100,050 94,000 126,000

Key: Ot - Output/Workload Measure

Description of Performance 

The IRS faced ongoing challenges in assisting tax-exempt and government entities in 

complying with complicated rules for maintaining their special tax status. It continues to 

ensure that charitable organizations are not used for non-charitable or illegal purposes, 

including financing terrorist activities. The IRS continues to help pension plans, exempt 

organizations, and government entities comply with tax law. In FY 2008 the IRS: 

 

• Launched an e-Postcard (Form 990N) for small tax-exempt organizations to file 

an annual information notice electronically; 

• Redesigned the form used by tax-exempt entities to report information about their 

operations; 

• Increased tax-exempt and government entities examinations by 3 percent, and 

compliance contacts 6 percent; 

• Developed a pre-screening process to identify employee plan applications that 

have deficiencies to enable the taxpayer to fix items timely; and 

• Increased small employer awareness of pension plan correction programs through 

new “fix-it” guides and an educational workshop. 
IRS-76 

Operations Support 

Appropriation Description 

The Operations Support appropriation 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, Equal Employment Opportunity 

(EEO) and diversity; research and statistics of income; and necessary expenses for 

information systems and telecommunication support, including development, security, 

and maintenance of the IRS information systems. 

The Operations Support Budget request for FY 2010 is $4,082,984,000 in direct 

appropriations and 12,316 FTE. This is an increase of $215,973,000 or 5.6 percent and 

46 FTE over the FY 2009 enacted level of $3,867,011,000 and 12,270 FTE. The increase 

of 5.6 percent from the FY 2009 enacted level includes support funding for enhanced 

enforcement activities. 

Support of Information Technology (IT) to the Taxpayer Services and Enforcement 

Programs 

The IRS information technology (IT) infrastructure as well as staffing, equipment, and 

related costs necessary to maintain and manage current information systems are critical to 

the support of the taxpayer services and enforcement programs. Technology is the 

critical link that allows the IRS to do its job quickly and efficiently. The core purpose of 

the IRS Modernization & Information Technology Services (MITS) organization is to 

provide and maintain the best technology available in serving the taxpaying public and to 

manage and upgrade this technology to support the IRS administration of the tax laws as 

carefully and proficiently as possible. Improvement to the IT infrastructure includes 

procuring and replacing desktop computers, automated call distributor hardware, mission 

critical servers, and wide area and local area network routers and switches. 

The MITS organization provides IT and telecommunications services to support the 

operation, maintenance, and enhancement of current IT systems and develops new 

information technology systems and products through the business systems 

modernization process. The IRS is in the midst of a multi-year effort to move its 

technology systems and operations from antiquated legacy systems to modernized IT 

systems equal to those of their counterparts in both the public and private sectors. The 

MITS organization supports every facet and phase of tax administration and provides the 

tools necessary to taxpayers to communicate and conduct transactions with the IRS. 

MITS core activities include the following programs, procedures, and actions: 

• Maintaining and updating the IT systems essential to meeting the needs of each 

filing season; 

• Managing existing information technology and developing new IT systems; 
IRS-77 

• Developing an IT service management model; 

• Defining and meeting systems availability service levels; 

• Implementing seat management (desktop) business process reengineering; 

• Consolidating and standardizing work request processes; 

• Sustaining a viable infrastructure program; and 

• Administering a comprehensive approach to customer relationship management. 

IRS business programs rely heavily on IT 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 and business units as well as operations support functions, including 

the toll-free access to tax information. 

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE1 Amount

FY 2009 Enacted 12,270 $3,867,011

Changes to Base:

Maintaining Current Levels $61,060

Pay Annualization 13,005

Pay Inflation Adjustment 23,816

Non-Pay Inflation Adjustment 24,829

Government-wide Reduction for Productivity Improvements (10,590)

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

Efficiencies/Savings ($27,207)

Increase e-File Savings (133)

Non-Recur Savings (27,074)

Reinvestment $306

Submission Processing Consolidation (Andover) 306

Subtotal Changes to Base $34,159

Total FY 2010 Base 12,270 $3,901,170

Program Changes:

Enforcement Initiatives $73,714

Reduce the Tax Gap Attributable to International Activities 20,827

Improve Reporting Compliance of SB/SE Taxpayers 18,834

Expand Document Matching for Business Taxpayers 6,857

Address Nonfiling/Underpayment and Collection Coverage 27,196

Infrastructure Initiatives 46 $108,100

Address IT Security and Material Weakness 36 90,000

Implement Return Review Program (RRP) 10 18,100

Subtotal FY 2010 Program Changes 46 $181,814

Total FY 2010 President's Budget Request 12,316 $4,082,984 1 Includes Technical FTE adjustments made since February 2008.
IRS-78 

2.2 – Operating Levels Table 

Dollars in Thousands 

Congressional FY 2009 

Appropriation Title: Operations Support FY 2009 Action FY 2009 Proposed FY 2010 % Change 

FY 2008 FY 2009 President's including Enacted Proposed Operating Request FY 2009 to 

Enacted1 ARRA Budget Rescission Level Reprogram. Level Level FY 2010

FTE 12,495 12,270 12,270 12,270 12,316 0.4%

Object Classification:

11.1 Full-Time Permanent Positions $970,952 $0 $978,431 $0 $978,431 $0 $978,431 $1,044,177 6.7%

11.3 Other than Full-Time Permanent Positions 13,207 0 22,332 0 22,332 0 22,332 23,007 3.0%

11.5 Other Personnel Compensation 35,673 0 32,073 0 32,073 0 32,073 31,770 -0.9%

11.8 Special Personal Services Payments 000 00000

11.9 Personnel Compensation (Total) $1,019,832 $0 $1,032,836 $0 $1,032,836 $0 $1,032,836 $1,098,954 6.4%

12.0 Personnel Benefits 304,229 0 309,867 0 309,867 0 309,867 335,790 8.4%

13.0 Benefits to Former Personnel 47,073 0 48,532 0 48,532 0 48,532 48,775 0.5%

21.0 Travel 46,121 0 36,627 0 36,627 0 36,627 37,928 3.6%

22.0 Transportation of Things 21,522 0 21,470 0 21,470 0 21,470 21,278 -0.9%

23.1 Rental Payments to GSA 610,005 0 653,627 0 653,627 0 653,627 668,154 −

23.2 Rent Payments to Others 19306 06067

23.3 Communications, Utilities, & Misc 475,136 0 405,208 0 405,208 0 405,208 445,527 10.0%

24.0 Printing & Reproduction 61,071 0 54,796 0 54,796 0 54,796 55,054 0.5%

25.1 Advisory & Assistance Services 90,291 0 93,114 0 93,114 0 93,114 127,437 36.9%

25.2 Other Services 441,600 0 427,449 10,839 438,288 0 438,288 416,456 -5.0%

25.3 Purchase of Goods & Services from Govt. Accoun 56,262 0 63,838 0 63,838 0 63,838 78,168 22.4%

25.4 Operation & Maintenance of Facilities 162,169 0 181,331 0 181,331 0 181,331 185,263 2.2%

25.5 Research & Development Contracts 2,108 0 4,660 0 4,660 0 4,660 7,825 67.9%

25.6 Medical Care 12,505 0 10,764 0 10,764 0 10,764 11,110 3.2%

25.7 Operation & Maintenance of Equipment 68,268 0 70,048 0 70,048 0 70,048 68,184 -2.7%

25.8 Subsistence & Support of Persons 1,282 0 1,304 0 1,304 0 1,304 1,256 -3.7%

26.0 Supplies and Materials 33,929 0 31,014 0 31,014 0 31,014 31,399 1.2%

31.0 Equipment 331,647 0 360,820 0 360,820 0 360,820 395,013 9.5%

32.0 Lands and Structures 55,461 0 48,139 0 48,139 0 48,139 48,682 1.1%

33.0 Investments & Loans 000 00000

41.0 Grants, Subsidies 000 00000

42.0 Insurance Claims & Indemn 405 0 722 0 722 0 722 724 0.3%

43.0 Interest and Dividends 000 00000

44.0 Refunds 000 00000

91.0 Unvouchered 000 00000

Total Budget Authority $3,841,109 $0 $3,856,172 $10,839 $3,867,011 $0 $3,867,011 $4,082,984 5.6%

Budget Activities:

Infrastructure $826,313 $0 $883,325 0 $883,325 $0 $883,325 $900,852 2.0%

Shared Services & Support 1,291,296 0 1,243,703 10,839 1,254,542 0 1,254,542 1,296,629 3.4%

Information Services 1,723,500 0 1,729,144 0 1,729,144 0 1,729,144 1,885,503 9.0%

Total Budget Authority $3,841,109 $0 $3,856,172 $10,839 $3,867,011 $0 $3,867,011 $4,082,984 5.6%

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.

0.0%

16.7%

0.0%

0.0%

0.0%

0.0%

0.0%
IRS-79 

2.3 – Appropriation Detail Table

Dollars in Thousands 

Operations Support % Change

FY 2008 FY 2008 FY 2009 FY 2010 FY 2009

Resources Available for Obligation Obligations Enacted1 Enacted Request to FY 2010

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Infrastructure $809,039 $826,313 $883,325 $900,852 1.98%

Shared Services and Support 5,572 1,279,800 6,068 1,291,296 5,977 1,254,542 5,977 1,296,629 0.00% 3.35%

Information Services 6,507 1,678,744 6,427 1,723,500 6,293 1,729,144 6,339 1,885,503 0.73% 9.04%

Subtotal New Appropriated Resources 12,079 $3,767,583 12,495 $3,841,109 12,270 $3,867,011 12,316 $4,082,984 0.37% 5.59%

Other Resources:

Recoveries 595 595

Offsetting Collections - Reimbursable 115 45,255 115 45,255 117 46,268 119 47,304 1.71% 2.24%

Available multi-year/no-year funds 43,039 43,039 67,808 61,000 -10.04%

50% Carryover 19,061 19,061

Transfers In/Out (4,500) (4,500)

Mandatory Appropriations - User Fees 82,163 82,163 32,900 32,900 0.00%

Subtotal Other Resources 115 $185,613 115 $185,613 117 $146,976 119 $141,204 1.71% -3.93%

Total Resources Available for Obligation 12,194 $3,953,196 12,610 $4,026,722 12,387 $4,013,987 12,435 $4,224,188 0.39% 5.24% 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 

3A – Infrastructure ($900,852,000 in direct appropriation, 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. This includes the following program activities: 

• Building Delegation oversees and manages the IRS GSA-delegated buildings, 

including cleaning, maintenance, utilities, protection, administrative, and 

recurring and one-time repair costs. 

• Rent provides resources for all IRS rent needs. 

• Space and Housing / Non-ADP Equipment provides management of all IRS 

building services, maintenance, space alterations, guard services, custodial 

overtime, utility services needs, and Non-ADP equipment. 
IRS-80 

3.2.6 – Budget and Performance Plan 

Dollars in Thousands 

Infrastructure

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $837,320 $808,254 $809,039 $883,325 $900,852

Reimbursable Resources 103 121 149 152 155

Mandatory Appropriations - User Fees 13,049 16,100 16,100

Total Resources $837,423 $808,375 $822,237 $899,577 $917,107

Budget Activity Total $837,423 $808,375 $822,237 $899,577 $917,107

Description of Performance 

The IRS continued to achieve cost savings in FY 2008 with its aggressive rent 

management strategy. These savings, coupled with those of previous years, have helped 

offset the increased costs associated with infrastructure improvement initiatives such as 

the Philadelphia Consolidation. 

Rent costs, including the cost of facility security, decreased over 1 percent from 

$666.6 million in FY 2007 to $659.6 million in FY 2008. The IRS achieved rent savings 

by identifying and completing 26 space reduction projects, releasing a cumulative total of 

515,783 square feet. These projects have annualized savings estimated at $9.6 million. 

Additionally, the IRS and GSA continued a delegated leasing initiative designed to save 

commission fees and to achieve negotiated lease savings. 

3A – Shared Services and Support ($1,296,629,000 in direct appropriation and an 

estimated $32,228,000 from reimbursable programs): This budget activity funds policy 

and 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 employee benefits 

programs. This includes the following program activities: 

• National Headquarters Management and Administration directs the management 

activities of strategic planning, communications and liaison, finance, human 

resources, EEO and diversity, and business systems planning and embedded 

training. This activity sets policies and goals, provides leadership and direction 

for the IRS and builds partner relationships with key stakeholders (e.g. Congress, 

GAO, OMB). It provides policy guidance for conducting IRS planning and 

budgeting strategies, conducting analysis of programs and investments to support 

strategic decision-making, and developing and managing the human resources. It 

also includes official reception and representation expenses. 

• Real Estate & Facilities Management provides services and supplies required to 

manage IRS facilities. 

• Procurement supports the procurement function of the IRS. 
IRS-81 

• EEO & Diversity Field Operations plans and manages the IRS EEO and Diversity 

Program. 

• Communications and Liaison coordinates local government and liaison 

relationships; handles congressional, state, and national stakeholder relationships 

and issues; coordinates cross-cutting issues, including managing audits and 

legislative implementation; handles national media contacts and local media 

relationships; and ensures IRS-wide compliance with disclosure and privacy laws. 

• Employee Support Services plans and manages financial services, including 

relocation, travel, imprest fund, purchase cards, corporate express, and employee 

clearances. 

• Treasury Complaint Mega Centers plan and manage the Treasury Complaint 

Centers. 

• Shared Support not provided by Agency-Wide Shared Services (AWSS) provides 

resources for shared cross-functional support such as copiers, postage meters, 

shredders, courier services, and post office boxes. 

• Printing and Postage – Media and Publications provides operating divisions with 

printing and postage, including shipping of taxpayer and internal use materials. 

• Statistics of Income provides resources for researching annual income, financial, 

and tax data from tax returns filed by individuals, corporations, and tax-exempt 

organizations. 

• Research provides resources for market-based research to identify compliance 

issues, for conducting tests of treatments to address noncompliance, and for the 

implementation of successful treatments of taxpayer non-compliant behavior. 

• Security protects employees, facilities and assets, and the confidentiality of 

taxpayer information. 

• Benefit Payments provides resources to fund Workers’ Compensation benefits and 

Unemployment Compensation for federal employee payments. 

• Shared Services provides additional services such as Public Transit Subsidy and 

Career Counselor Contract. 
IRS-82 

3.2.7 – Budget and Performance Plan 

Dollars in Thousands 

Shared Services and Support 

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $1,154,616 $1,154,724 $1,279,800 $1,254,542 $1,296,629

Reimbursable Resources 17,836 13,649 30,796 31,504 32,228

Mandatory Appropriations - User Fees 19,114

Total Resources $1,172,452 $1,168,373 $1,329,710 $1,286,046 $1,328,857

Budget Activity Total $1,172,452 $1,168,373 $1,329,710 $1,286,046 $1,328,857

Description of Performance 

Through support activities including management and administration of human resources, 

security, and research, the IRS continues to provide shared services to all IRS programs. 

Two tenets of the IRS succession planning strategy are to grow future leaders and to 

ensure adequate bench strength to lead the current organization. In FY 2008, the IRS: 

• Opened the Leadership Succession Review process (LSR) to bargaining unit 

employees to identify those individuals with potential to become leaders; and 

• Initiated a leadership-coaching pilot designed to serve and support the current 

cadre of managers. An analysis of the Employee Engagement Survey results for 

2007 and 2008 indicates that coaching benefits both managers and employees and 

strengthens the workgroup. 

In FY 2008, the IRS established a Workforce of Tomorrow task force to implement short 

and long- term improvements in the areas of retaining people, attracting the best 

candidates, enhancing the role of IRS managers, and growing future leaders. 

The IRS actively ensures the security of its infrastructure and IT systems. The IRS 

collects a tremendous amount of sensitive information, and protecting this information is 

vital to maintaining the public trust. Public trust encourages voluntary compliance with 

the tax law and enables the IRS to conduct business effectively. 

The IRS protects taxpayer personally identifiable information, including social security 

numbers. In FY 2008, to protect the tax administration systems from unauthorized 

access, disruption, and modification the IRS: 

• Established the Office of Online Fraud Detection and Prevention to address 

increasing and evolving online threats that affect the IRS and taxpayers; 

• Continued risk assessments of business processes to address identity protection; 

and analyzed the use of social security numbers for reduction and elimination 

where possible; 
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• Updated the IRS Identity Protection Strategy, a comprehensive strategy to protect 

personal information and provide services to identity theft victims; 

• Completed a corrective action plan to address IT Security Training, systems 

auditing, access controls, system security configuration control, and IT systems 

disaster recovery; and 

• Established agency-wide security policies and standards. 

 

In FY 2008, the IRS expanded its ongoing research studies of filing, payment and 

reporting compliance, including the National Research Program, to provide a 

comprehensive picture of overall taxpayer compliance 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 workload selection models to reduce audits of 

compliant taxpayers and ultimately help the IRS achieve high rates of return from its 

enforcement programs. Launched in 2007 and continued in 2008, the reporting 

compliance study for individual taxpayers will provide updated and more accurate audit 

selection tools. It is the first of an ongoing series of studies using a multi-year rolling 

methodology. The study examined more than 13,000 randomly selected tax year 2006 

individual audits. Similar sample sizes will be used in subsequent tax years. This new 

method will allow the IRS to combine results over rolling three-year periods to make 

annual updates to its voluntary compliance estimates after the initial three annual studies. 

As part of its continuing effort to measure the burden associated with meeting federal tax 

obligations, the IRS surveyed both individual and self-employed taxpayers to measure 

time and expense in meeting filing requirements for small-business taxpayers who file 

both income and employment tax returns. Results of the surveys will be used to develop 

updated burden estimate models for release in FY 2009. 

3A – Information Services ($1,885,503,000 in direct appropriation, 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. 

Under this budget activity staff develops and maintains the millions of lines of 

programming code that support all aspects and phases of tax-processing. They are 

responsible for operating and administering the hardware infrastructure of mainframes, 

servers, personal computers, networks, and a variety of management information 

systems. 

MITS is responsible for everything dealing with information systems and technology, 

ranging from cyber security and networks to applications development and end user 

equipment and services. This includes the following program activities: 

• Customer Relationship and Service Delivery Management provides services in an 

integrative manner to improve service delivery processes to seek performance 

improvement. 

• Security Services ensures effective security policies and programs to safeguard 

taxpayer records, business processes, and IT systems. The program establishes a 
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governance process to perform vulnerability assessments and provide servicewide mission assurance as well as security support to IRS systems modernization. 

Security management provides executive direction for enterprise-wide IT security 

policy development and implementation, operations, and services. 

• Tier B provides support to single-owner, small-to medium-sized investment 

projects using core data to support specialized functions. 

• National Headquarters (NHQ) ADP Management provides for the management 

and oversight of investments in IT for the Chief of Staff and Research, Analysis 

and Statistics (RAS). The program enables NHQ to manage and leverage IT 

solutions that are responsive to IRS-wide management, tax compliance, 

enforcement strategic and tactical research projects. 

• MITS Executive Oversight provides support to the immediate office of the Chief 

Technology Officer, as well as the direct reports for EEO and Diversity, and the 

Director, Stakeholder Management (including Communications Services and 

Program Oversight). The program provides executive direction for the MITS 

organization, enabling MITS to be a customer-focused supplier of IT solutions 

that are responsive to customer business priorities and effectively meet functional 

and operational needs. 

• Application Development performs the analysis, design, development, testing, and 

implementation of approximately 85,000 application programs supporting critical 

tax processing, management information reporting, and financial and management 

support systems for the IRS. This program activity also supports external trading 

partner data exchanges with federal government agencies, state and local 

governments, and other third-party entities. The program controls application 

source code and deploys applications to the production environment. 

• Enterprise Operations designs, develops, and maintains IT that supports critical 

tax processing, management information reporting, and financial and management 

support systems for the IRS. The program supports data exchanges with external 

organizations such as other federal government agencies, state and local 

governments, and external entities (e.g. employers and banks) and includes a 

comprehensive disaster recovery capability to ensure continued operations in the 

agency in the event of a major interruption of service. 

• Enterprise Network provides telecommunications service delivery to all customer 

segments, including management of day-to-day operations and execution of 

routine modifications to the telecommunications infrastructure and applications. 

It addresses all phases of engineering, acquisition, implementation, and operation 

of telecommunications systems and services, including voice, video, and data 

communications. 

• Enterprise Services plans and manages service and delivery methods used across 

the MITS organization, including demand analysis, enterprise architecture, 

configuration management, project reporting, enterprise life cycle management, 

release management, systems engineering, dashboard reporting, and internal 

management. 

• End User Equipment and Services maintains the IRS automated business 

processes at headquarters and field sites by providing technical systems support 

and applications software support to end users, legacy operations maintenance, 

local and corporate systems administration activities, email and domain user 
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account maintenance, network and systems monitoring administration, asset 

management activities, and support and maintenance of the voice and data 

infrastructure at the territory offices. 

• MITS Management provides the management and oversight of investments in IT, 

human capital investment, and other MITS operational priorities. 

• IT Security Certification and Accreditation provides design and operations of 

security controls and the technical mechanism used by the IRS 

systems/applications as part of the system security plan, system risk assessment, 

and IT contingency plan. It also supports security testing/evaluation as part of the 

certification process, including time preparing system documentation, 

interviewing with contractors, and responding to information requests. 

• IT Operational Security oversees Federal Information Security Management Act 

(FISMA) reporting, including preparing for, conducting, and reporting National 

Institute of Standards and Technology (NIST) 800-26 self-assessments and annual 

testing of controls. 

• IT Security Training provides training for FISMA reporting purposes. 

• IT Homeland Security Presidential Directive-12 oversees the use of Personal 

Identity Verification (PIV) technology for physical access to federally-controlled 

facilities and logical access to information systems for all federal employees and 

contractors who require long-term access. 

• IT Infrastructure corporately funds the replacement of IRS IT infrastructure that 

has reached or surpassed its useful life cycle. The resources achieved through 

efficiencies in various parts of MITS are centralized to ensure that replacement of 

the IRS aging infrastructure is addressed corporately. 

• Treasury Working Capital Fund separates the telecommunications program 

budget required for paying Treasury billings for IRS corporate 

telecommunications services. 

• Integrated Document Solutions Enterprise (IDSE) Campus Operations Most 

Efficient Organization (MEO) captures savings resulting from IDSE MEO 

activities. 
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3.2.8 – Budget and Performance Plan 

Dollars in Thousands 

Information Services

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $1,510,449 $1,551,603 $1,678,744 $1,729,144 $1,885,503

Reimbursable Resources 3,330 14,006 14,310 14,612 14,921

Mandatory Appropriations - User Fees 66,678 50,000 16,800 16,800

Total Resources $1,513,779 $1,632,287 $1,743,054 $1,760,556 $1,917,224

Budget Activity Total $1,513,779 $1,632,287 $1,743,054 $1,760,556 $1,917,224

Description of Performance 

In FY 2008, the IRS successfully implemented several initiatives that continue to 

improve the IT infrastructure that will lead to greater efficiency and productivity. In 

FY 2008, the IRS implemented governance and program controls and established the 

Program/Project Health Assessment. 

The governance and program controls represent a consistent standardized governance 

approach to manage all IT investment projects. The IRS now maps its IT projects to a 

single comprehensive framework and applies best practices across the entire IT portfolio. 

The Program/Project Health Assessment is a repeatable enterprise process to assess the 

condition of IT development, maintenance, and services projects to better equip IRS 

decision makers with information products and capabilities to achieve desired outcomes. 

This process examines the “health” of all IT projects both within the Business Systems 

Modernization (BSM) portfolio and across the entire IT portfolio IRS-wide. It provides 

independent, early warning indicators to IT managers and governance and control 

organizations concerning projects facing unusual challenges that can influence the filing 

season or other critical IRS functions. 

A solid IRS IT workforce is critical in capitalizing on the potential customer service 

benefits presented by technology and the expansion of E-Government. The IRS 

continues to implement a large and highly complex modernization program with an aging 

IT workforce, and many of them are retirement-eligible. To address this issue, the IRS 

developed a human capital strategy that addresses hiring critical personnel, employee 

training, leadership development, and workforce retention. 

In support of this strategy, the IRS has implemented several high priority initiatives in 

FY 2008. The IRS formed a team to identify challenges in the hiring process and 

established the Executive Hiring Council to coordinate recruitment actions and strategies 

for the Modernization and Information Technology Services organization. The IRS also 

improved its hiring for mission critical positions through automation, simplification of 

the application process, and the use of incentives. 
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The IRS successfully completed updates to security plans and certified and accredited 

each application and general support system. The IRS successfully completed security 

certification and accreditation for 100 percent of its IT systems. All FISMA 2008 

reporting activities were completed and validated before the June 30, 2008 deadline. 

The IRS implemented, as part of the Enterprise Disk Encryption project, the use of a new 

security technology product, Guardian Edge Removable Storage (GERS), to provide 

encryption protection of sensitive and personally identifiable information as mandated by 

OMB. GERS provides automatic encryption of all data written to removable storage 

devices, including flash drives, external hard drives, and CD/DVDs. 

The IRS conducted Operation R.E.D. to focus employee awareness on existing policies 

and procedures regarding safeguarding of sensitive information. During this event, 

employees were given time to: 

• Review their electronic files and paper holdings for sensitive information that is 

required to be secured; 

• Encrypt (electronic) and/or safeguard (paper) all sensitive information that is 

required to be secured; and 

• Decide whether information that they no longer have a need to know should be 

archived or destroyed. 

 
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Business Systems Modernization 

Appropriation Description 

The Business Systems Modernization (BSM) appropriation provides resources for the 

planning and capital asset acquisition of IT to modernize the IRS business systems. 

The BSM Budget request for FY 2010 is $253,674,000 in direct appropriations and 

333 FTE. This is an increase of $23,760,000 or 10.3 percent over the FY 2009 enacted 

level of $229,914,000 and 333 FTE. 

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE1 Amount

FY 2009 Enacted 333 $229,914

Changes to Base:

Maintaining Current Levels $1,153

Pay Annualization 412

Pay Inflation Adjustment 741

Subtotal Changes to Base $1,153

Total FY 2010 Base 333 $231,067

Program Changes:

Business Systems Modernization $22,607

Total FY 2010 President's Budget Request 333 $253,674 1 Includes Technical FTE adjustments made since February 2008.
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2.2 – Operating Levels Table

Dollars in Thousands 

Congressional FY 2009 Appropriation Title: Business Systems FY 2009 Action FY 2009 Proposed FY 2010 % Change Modernization FY 2008 FY 2009 President's including Enacted Proposed Operating Request FY 2009 to 

Enacted ARRA Budget Rescission Level Reprogram. Level Level FY 2010

FTE 358 333 333 333 333 0.0%

Object Classification:

11.1 Full-Time Permanent Positions $35,790 $0 $33,621 $0 $33,621 $0 $33,621 $33,672 0.2%

11.3 Other than Full-Time Permanent Positions 745 0 766 0 766 0 766 855 11.6%

11.5 Other Personnel Compensation 559 0 575 0 575 0 575 703 22.3%

11.8 Special Personal Services Payments 000 00000

11.9 Personnel Compensation (Total) $37,094 $0 $34,962 $0 $34,962 $0 $34,962 $35,230 0.8%

12.0 Personnel Benefits 8,151 0 8,444 0 8,444 0 8,444 9,416 11.5%

13.0 Benefits to Former Personnel 0 0 0 00000

21.0 Travel 000 00000

22.0 Transportation of Things 000 00000

23.1 Rental Payments to GSA 000 00000

23.2 Rent Payments to Others 000 00000

23.3 Communications, Utilities, & Misc 000 00000

24.0 Printing & Reproduction 0 0 0 00000

25.1 Advisory & Assistance Services 000 00000

25.2 Other Services 157,914 0 115,327 7,250 122,577 0 122,577 126,836 3.5%

25.3 Purchase of Goods & Services from Govt. Accoun 000 00000

25.4 Operation & Maintenance of Facilities 000 00000

25.5 Research & Development Contracts 000 00000

25.6 Medical Care 000 00000

25.7 Operation & Maintenance of Equipment 7,281 0 7,281 0 7,281 0 7,281 10,578 45.3%

25.8 Subsistence & Support of Persons 000 00000

26.0 Supplies and Materials 000 00000

31.0 Equipment 56,650 0 56,650 0 56,650 0 56,650 71,614 26.4%

32.0 Lands and Structures 000 00000

33.0 Investments & Loans 000 00000

41.0 Grants, Subsidies 000 00000

42.0 Insurance Claims & Indemn 000 00000

43.0 Interest and Dividends 000 00000

44.0 Refunds 000 00000

91.0 Unvouchered 000 00000

Total Budget Authority $267,090 $0 $222,664 $7,250 $229,914 $0 $229,914 $253,674 10.3%

Budget Activities:

IT Investments $267,090 $0 $222,664 $7,250 $229,914 $0 $229,914 $253,674 10.3%

Total Budget Authority $267,090 $0 $222,664 $7,250 $229,914 $0 $229,914 $253,674 10.3%

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0.0%

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0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

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FY 2010 Project Request

Customer Account Data Engine $85.7

Modernized e-File $50.0

Core Infrastructure $32.0

Architecture, Integration and Management $35.0

Management Reserve $5.0

Labor $46.0

Total $253.7

2.3 – Appropriation Detail Table 

Dollars in Thousands 

Business Systems Modernization % Change

FY 2008 FY 2008 FY 2009 FY 2010 FY 2009

Resources Available for Obligation Obligations Enacted Enacted Request to FY 2010

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Business Systems Modernization 347 $170,576 358 $267,090 333 $229,914 333 $253,674 0.00% 10.33%

Subtotal New Appropriated Resources 347 $170,576 358 $267,090 333 $229,914 333 $253,674 0.00% 10.33%

Other Resources:

Recoveries 3,256 3,256

Offsetting Collections - Reimbursable

Available multi-year/no-year funds 82,394 82,394 106,883 94,000 -12.05%

50% Carryover

Transfers In/Out

Mandatory Appropriations - User Fees

Subtotal Other Resources $85,650 $85,650 $106,883 $94,000 -12.05%

Total Resources Available for Obligation 347 $256,226 358 $352,740 333 $336,797 333 $347,674 0.00% 3.23%

3A – Business Systems Modernization ($253,674,000 in direct appropriation): This 

budget activity funds the planning and capital asset acquisition of IT to modernize the 

IRS business systems, including labor and related contractual costs. The IRS BSM 

program is required to submit an annual expenditure plan that justifies the projects for 

which resources are requested. 

The IRS depends on the core tax administration systems to deliver its mission, and they 

require ongoing, long-term commitment to ensure that IRS maintains its world-class tax 

administration systems. The FY 2010 BSM request of $253.7 million funds the projects 

listed in the table below. 
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The $253.7 million BSM request funds the programs and activities described below. 

FY 2010 Business Systems Modernization

(Dollars in Millions)

FY2008 FY 2009 FY 2010 Project Business Systems Modernization Initiatives Enacted Enacted Request

58.500 78.100 85.654 FY 2010 funding will allow IRS to execute plan to accelerate the CADE data 

conversion, and derive business benefits in accordance with recent Customer Account Data Engine replanning efforts. Budget also includes funding for continued tax law 

changes and increased focus on enhancing the overall security posture.

28.983 0.000 0.000 Shift in strategy calls for an integrated approach to modernizing IRS's core 

tax account database, so line items for AMS will no longer be broken out Accounts Management Services separately, but rather will be included under Customer Account Data 

Engine.

FY 2010 plan calls for completion of 122 additional forms that will expand 55.802 25.000 50.000

the reach of MeF to 93.7 million taxpayers, or 99% of the e-File population. 

Modernized e-File Because of the size and scale of this release, investment in infrastructure 

and disaster recovery capabilities are needed to appropriately manage 

operational risk.

Provide services in architecture, engineering and deployment of 39.150 43.250 32.000

standardized, consolidated, virtual and secure modernized development 

environments (DITE) and shared infrastructure components (EUP, RUP, Core Infrastructure Security) of the production environments. Additional funds in FY 2009 

provide for enhanced security posture, harden the environment, and support 

disaster recovery capabilities.

35.100 35.000 35.000 Provide system engineering management capabilities including IRS 

systems strategy, architecture, and engineering capabilities across IT 

Infrastructure, Business Applications, Data Management and IT Security. Architecture, Integration, and Provide project integration and management processes and tools including Management governance, enterprise lifecycle support, tiered program management, 

business rules and requirements, transition management, cost estimation, 

configuration/change management and risk management.

Management Reserve 4.310 3.358 5.020

Subtotal Capital Investments 221.845 184.708 207.674

BSM Labor 45.245 45.206 46.000

Total BSM Appropriation 267.090 229.914 253.674

Customer Account Data Engine 

The IRS requests $85.7 million to continue the development of the Customer Account 

Data Engine, the new taxpayer account database that will serve as the central repository 

of tax account information for all individual taxpayers. In FY 2009, the IRS shifted its 

focus from concurrent development of a database and associated applications to a 

strategy that focuses on completion of the core taxpayer account database (Customer 

Account Data Engine). This approach will allow the IRS to accelerate data conversion to 

the new database while also addressing security, financial material weaknesses, and longterm architectural planning concerns. Thus, the Customer Account Data Engine, which 

includes AMS and elements of the previous CADE plan, is an integrated plan to deliver 

new capabilities in the coming years. This plan includes accelerating consolidation of the 

Individual MasterFile (IMF) and current CADE architectures, migration of IMF data into 

a daily processing architecture, and incorporation of enhanced security protocols and 

financial management controls. 

The Customer Account Data Engine will improve the IRS capability to respond quickly 

to changing business needs and accelerate business process changes. The complete data 

model and sole authority taxpayer account database is a critical step toward significantly 

enhanced compliance and service programs. It will also foster better collaboration 

through improved data exchange between the IRS and other Federal and State agencies. 

The Customer Account Data Engine will improve taxpayer service and tax compliance by 

making accurate and timely tax data available to taxpayers and the IRS and by providing 

faster refunds for all individual taxpayers. 
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The IRS approach to modernization will fully leverage the successful development 

efforts of the last several years. FY 2010 activities include continued development and 

integrated daily processing, data conversion to the new relational database, development 

and testing of applications to enhance viewing of database extracts, incorporation of tax 

law changes in the current CADE application, and stand-up of a program office. While 

the primary focus will be on database completion, targeted application development will 

begin on a common penalty and interest module to assure accurate and consistent 

calculations across applications and to allow faster implementation of calculation 

changes, and modification of taxpayer notice processing. 

Modernized e-File (MeF) 

The IRS requests $50 million to continue development and deployment of the MeF webbased platform. MeF allows electronic filing tax and provides a single point of 

transmission for the electronic submission of federal corporate, non-profit, and 

partnership returns and the associated state returns for a limited number of states. MeF 

stores tax return data in a modernized Tax Return Database allowing IRS employees to 

see an entire tax return online. 

The following forms have been migrated onto the modernized platform: 

• Form 1120, U.S. Corporation Income Tax Return, Form 1120-S, U.S. Income Tax 

Return for an S corporation (2007);

• Form 990, Return of Organization Exempt from Income Tax (2007);

• Form 1065, U.S. Return of Partnership Income (2007); and

• Form 1120-F, U.S. Income Tax Return of a Foreign Corporation along with the 

Non-Profit e-Postcard (990N) (2008). 

The IRS is implementing the Form 1040, U.S. Individual Income Tax Return, onto the 

MeF platform in three phases. 

Phase I began in FY 2007 with deployment scheduled in January 2010. Phase I consists 

of the Form 1040 and 21 of the most common forms and schedules used by 61 percent of 

the e-File population such as Itemized Deductions, Schedule B, Interest and Ordinary 

Dividends, and Schedule D, Capital Gains and Losses. Phase I also includes 

enhancements to infrastructure and disaster recovery and development of the interfaces 

for all three 1040 phases. 

Phase II began in FY 2009 and is scheduled to be implemented in January 2011. 

This Phase will enhance the deployment of disaster recovery capability delivered in 

Phase I and include tax law changes and continued code optimization. 

Phase III will begin in FY 2010 and is scheduled to deploy in January 2012. This phase 

will complete the implementation of the 1040 family of forms. After Phase III 

implementation, all Form 1040 taxpayers will be able to file electronically. 
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Once forms are migrated to the MeF platform, tax preparers and taxpayers will realize the 

following benefits: 

• Extensive business rule validation and error checking to ensure the accuracy of 

the tax return; 

• Sophisticated math error validation checking to increase the likelihood that the tax 

return will be successfully processed; 

• Explanations for rejected returns; 

• Ability to submit all necessary supporting documentation with the tax return; and 

• Faster response times to the external community. 

The IRS benefits from the continued migration of forms from the legacy e-File 

applications to MeF. MeF allows retirement of legacy e-File applications; eliminates the 

need to match paper tax return-related documents with e-filed tax returns; makes tax 

return data needed for compliance purposes available sooner to front-line enforcement 

staff; and includes tools and help-desk capabilities to provide more timely information to 

taxpayers on the status of their return. 

Core Infrastructure 

The IRS requests $32 million to provide a complete environment (hardware, software, 

and management) for developing, testing, deploying, operating, and monitoring both 

customer and internal applications in support of the IRS shift in business practices. This 

includes standardizing telecommunication services, security, and operations management 

as well as updating the access portals. This will allow the IRS to develop infrastructure 

and common business service solutions that are usable across multiple major projects. 

Core infrastructure consists of two programs, Infrastructure Shared Services and 

Development, Integration and Testing Environment (DITE). 

Infrastructure Shared Services (ISS) provides services in designing, engineering and 

deploying a standardized, consolidated, virtual and secure modernized production 

environment for BSM projects. ISS provides integrated engineering and architectural 

services including systems engineering program management, configuration 

management, performance engineering, capacity planning, infrastructure requirements, 

security engineering, and transition management support. In FY 2010, ISS will focus on 

common business services, security, and infrastructure enhancements that affect the 

modernization projects, while continuing to support efforts to enhance availability and 

portal improvements begun in FY 2009. The ISS also will address the increase in 

electronic documents, online transactions, and online tax filers on the modernized 

infrastructure environments. 

Identification and development of common infrastructure, security, and application 

integration services (i.e., audit, security, case management, and authentication) reduces 

delivery time, application development, and operations and maintenance costs. Using 

ISS, BSM projects avoid developing costly customized solutions for each required 

interface to data, other application services, and security components. 
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Development, Integration, and Testing Environment (DITE) provides the standardized 

systems development environments and associated engineering services to support BSM 

projects. In addition, DITE addresses the expanded scope associated with the integration 

of BSM projects into the current production environment. It uses streamlined processes 

and standard tools that allow development and testing in a controlled environment to 

ensure projects work effectively and seamlessly in the modernized production 

environment. DITE consists of a Virtual Development Environment (VDE) and an 

Enterprise Integration and Test Environment (EITE). The VDE provides a software 

development environment that enables geographically disbursed developers to access 

standardized tools, information, and services. The EITE provides the structured, 

production-like integration and testing environment to test end-to-end system capabilities 

before release into production.

Architecture, Integration, and Management (AI&M) 

The IRS requests $35 million to provide continued support to the AI&M program. This 

program provides engineering management capabilities essential to delivering a program 

of the magnitude, nature, and complexity of BSM and delivers essential IRS systems 

strategy, architecture, and engineering capabilities to the major modernization projects 

across all technology platforms: IT Infrastructure, Business Applications, Data 

Management, and IT Security. AI&M translates enterprise and project objectives into 

targeted, actionable investments to provide the necessary enterprise technical framework 

and direction for cohesive and successful modernization. Major AI&M components are: 

Business Application Architecture and Integration (BAAI) delivers the BSM systems 

architecture, engineering, and integration tasks, intersecting more than 500 production 

systems and 100 active IT projects. BAAI produces the principles, strategies, and 

standards to guide the construction and delivery of coherent and integrated enterprise 

systems. Key FY 2010 deliverables include the Enterprise Target Architecture and 

Integration Roadmap, Enterprise Transition Strategy, Release Architecture, As-Built 

Architecture, Enterprise Standards Profile, Service Oriented Architecture Roadmap, and 

Segment Architectures. 

Data Management delivers several essential elements of the IRS Data Strategy Roadmap 

and implements common repositories for use by all IRS applications. The Data 

Management Strategy defines an enterprise-wide data environment to more easily and 

efficiently organize, identify, share, reuse and correlate data that enables the IRS 

compliance functions to consume information and maximize the value to the agency. 

The BSM projects included in the FY 2010 Data Strategy Roadmap are building out the 

tax return store; prototyping the metadata program; and expanding users for the 

Integrated Production Model, in which data from different data stores (accounts, tax 

returns, and information returns) will be combined in a single environment. These new 

data management capabilities allow reuse of services for BSM projects so information is 

readily shared. The FY 2010 Enterprise Data Strategy will focus on increasing data 

security and closing the gap on key capabilities needed by the IRS compliance functions, 

such as deeper integration of data and better case selection. 
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IT Security is implementing automation to allow proactive cyber security evaluation and 

instrumentation of applications, projects and system compliance with internal and 

external security and privacy standards, policies, and related federal directives (e.g., 

FISMA, NIST, DHS, OMB, GAO, and Treasury). It also designs and implements 

remediation plans to ensure that the project or system passes the security test and 

evaluation processes. Other planned FY 2010 deliverables include “defense-in-depth” 

improvements through, updated infrastructure engineering security standards, IRS 

Enterprise Architecture Security and Privacy Guidance updates, and refinements to the 

IRS Security Domain Segment Architecture. 

Business Integration (BI) processes and standards allow the IRS to define, manage, and 

successfully deliver its Information Technology portfolio. BI activities include 

Integration Planning and Operations Improvement, Modernization Vision and 

Strategy, Cost Estimation, and Transition Management. BI will expand implementation 

of Information Technology Infrastructure Library (ITIL) standards to the change 

management, configuration management and release management process areas. 

BI also will provide an integrated IT portfolio assessment of organizational capacity for 

delivering BSM capabilities. This IT portfolio assessment is critical to ensure the 

technical impact of BSM program decisions to the current production environment are 

fully understood and considered. Engineering analyses and resource estimates 

are integral to ensuring organizational capacity needs are incorporated into both plans and 

budgets to deliver an integrated portfolio, including maintaining current operations, 

delivering filing season, addressing significant legislative initiatives, and supporting 

BSM initiatives. 

Business Rules and Requirements Management (BRRM) improves the conduct of 

business analysis, process redesign, business rules harvesting and management, and 

business requirements definition. BRRM standards and expertise allow the IRS to 

incorporate engineering industry best practices into the Enterprise Life Cycle for 

consistent systems development processes, apply business rules methods, tools and 

processes to BSM projects, and develop enterprise policy and standards for business 

rules management. BRRM provides project planning and management, business process 

redesign, rules and requirements development, business modeling, and baseline 

management and solution development support. 

Management Processes (MP) provides management disciplines leading to consistent 

quality, managed risk, increased stakeholder satisfaction, and delivery of modernized 

business systems within established cost and schedule parameters. The IRS is 

continually working to strengthen its management processes through the development 

and deployment of processes and procedures such as Earned Value Management (EVM) 

and Enterprise Life Cycle (ELC). The dynamic nature of modernization drives BSM to 

continually assess its operation and implement continuous improvements. 

Program Management (PM) oversees contractor activities, sustains improvements to 

program performance, and ensures delivery of taxpayer benefit through delivery of 

projects on time, on budget, and at or above quality targets. PM provides financial 
IRS-96 

planning and risk management, including the use of a common risk, issue and action item 

management process tool. 

Federally Funded Research & Development Center (FFRDC) provides national experts in 

systems engineering, architectural design and development, security, and other technical 

disciplines that are critical to modernization success. The Center’s broad visibility, deep 

domain knowledge, and objectivity provide an independent voice to executive 

management staff and provide management guidance on difficult issues. Key services 

include support of institutionalizing and maturing processes and risk mitigation. 

Management Reserve 

The IRS requests $5.0 million to fund the management reserve to cover unanticipated 

cost adjustments for the BSM projects. 

BSM Labor 

The IRS requests $46 million to fund the base FY 2009 staffing level for BSM labor 

($44.8 million) and FY 2010 inflation costs ($1.2 million). 

 
IRS-97 

3.2.9 – Budget and Performance Plan 

Dollars in Thousands 

Business Systems Modernization

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $113,702 $158,758 $170,576 $229,914 $253,674

Reimbursable Resources

Mandatory Appropriations - User Fees

Total Resources $113,702 $158,758 $170,576 $229,914 $253,674

Budget Activity Total $113,702 $158,758 $170,576 $229,914 $253,674

Business Systems Modernization Budget Activity FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Measure Actual Actual Actual Target Target

Percent of BSM Projects within +/- 10% Cost Variance (E) * * 92.0% 90.0% 90.0%

Percent of BSM Projects within +/- 10% Schedule Variance (E) * * 92.0% 90.0% 90.0%

Key: E - Efficiency Measure

*

 Prior to FY 2008, Cost and Schedule Variance was reported separately for each project. In FY 2008, these measures were changed to reflect an overall 

percentage of all major BSM projects that were within the +/- 10% threshold. In FY 2009, MITS is changing the methodology to include all major BSM 

and Non-BSM projects. If approved, reporting will begin in FY 2010.

Description of Performance 

The IRS must manage its resources, businesses, and technology systems optimally to 

effectively and efficiently support its service and enforcement mission. Of the major 

BSM project releases completed in FY 2008, 92 percent were within the +/- 10 percent 

cost and project schedule variance goal. Significant modernization accomplishments for 

FY 2008 include the Customer Account Data Engine (CADE), the Modernized e-File 

system (MeF), improved Account Management Services (AMS) capabilities, and the IRS 

Data Access Strategy. 

The CADE release was delivered on time for the filing season and processed 30.6 million 

returns, a substantial increase from the 2007 posting of 11.2 million returns. It also 

issued over 28.9 million refunds, totaling more than $44.1 billion, exclusive of Stimulus 

payments. CADE settles daily, allowing it to process refunds on average five days faster 

than the legacy system. It also updates taxpayer account information immediately for 

customer service personnel, rather than weekly updates in the legacy system. 

The MeF added new capabilities and delivered forms 1120F (Foreign Corporation) and 

990N (Exempt Organization) at the start of the 2008 Filing Season. In FY 2008, new 

functionality enabled MeF to accept over 3.7 million returns, which is a 55 percent 

increase over last year. MeF offers 100 percent data capture that is available to IRS 

customer service representatives online and in real-time. 

AMS delivered new capabilities that include a new inventory and workflow that 

automates the assignment, research, resolution, and closure for entity and account 

transcripts; these are internally generated cases currently worked in a paper-based manual 

process. This enables authorized users to resolve taxpayer issues more efficiently and 

improve the overall taxpayer experience. 
IRS-98 

Health Insurance Tax Credit Administration 

Appropriation Description 

The Health Insurance Tax Credit Administration (HITCA) appropriation provides 

funding for contractor support to develop and administer the advance payment option for 

the Health Coverage Tax Credit (HCTC) included in Public Law 107-210, the Trade 

Adjustment Assistance Act (Trade Act of 2002). 

The IRS administers the enrollment, payment, and compliance components of this credit. 

The Department of Labor, state workforce agencies, and the Pension Benefit Guaranty 

Corporation (PBGC) are responsible for determining potentially eligible HCTC 

taxpayers. This credit was significantly expanded by the American Recovery and 

Reinvestment Act of 2009 (Public Law 111-5).

The HITCA Budget request for FY 2010 is $15,512,000 in direct appropriation and 

15 FTE. This is an increase of $106,000 or .69 percent over the FY 2009 enacted level of 

$15,406,000 and 15 FTE. This amount does not include $80,000,000 of funding 

provided by American Recovery and Reinvestment Act of 2009 (Public Law 111-5).

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE1 Amount

FY 2009 Enacted 15 $15,406

Changes to Base:

Maintaining Current Levels $106

Pay Annualization 13

Pay Inflation Adjustment 23

Non-Pay Inflation Adjustment 141

Government-wide Reduction for Productivity Improvements (71)

Subtotal Changes to Base $106

Total FY 2010 Base 15 $15,512

Program Changes:

Subtotal FY 2010 Program Changes

Total FY 2010 President's Budget Request 15 $15,512 1 Includes Technical FTE adjustments made since February 2008.
IRS-99 

2.2 – Operating Levels Table 

Dollars in Thousands 

Congressional FY 2009 Appropriation Title: Health Insurance Tax Credit FY 2009 Action FY 2009 Proposed FY 2010 % Change Administration FY 2008 FY 2009 President's including Enacted Proposed Operating Request FY 2009 to 

Enacted ARRA Budget Rescission Level Reprogram. Level Level FY 2010

FTE 17 15 15 15 15 0.0%

Object Classification:

11.1 Full-Time Permanent Positions $2,395 $0 $2,335 $0 $2,335 $0 $2,335 $2,363 1.2%

11.3 Other than Full-Time Permanent Positions 000 00000

11.5 Other Personnel Compensation 23 1,000 24 0 24 0 24 24 0.0%

11.8 Special Personal Services Payments 000 00000

11.9 Personnel Compensation (Total) $2,418 $1,000 $2,359 $0 $2,359 $0 $2,359 $2,387 1.2%

12.0 Personnel Benefits 371 0 352 0 352 0 352 360 2.3%

13.0 Benefits to Former Personnel 0 0 0 00000

21.0 Travel 148 0 150 0 150 0 150 151 0.7%

22.0 Transportation of Things 000 00000

23.1 Rental Payments to GSA 198 0 202 0 202 0 202 0 −

23.2 Rent Payments to Others 000 00000

23.3 Communications, Utilities, & Misc 0 2,0000 00000

24.0 Printing & Reproduction 0 2,000 0 00000

25.1 Advisory & Assistance Services 000 00000

25.2 Other Services 12,093 73,000 12,335 0 12,335 0 12,335 12,606 2.2%

25.3 Purchase of Goods & Services from Govt. Accoun 000 00000

25.4 Operation & Maintenance of Facilities 000 00000

25.5 Research & Development Contracts 000 00000

25.6 Medical Care 000 00000

25.7 Operation & Maintenance of Equipment 000 00000

25.8 Subsistence & Support of Persons 000 00000

26.0 Supplies and Materials 7 2,0008 08088

31.0 Equipment 000 00000

32.0 Lands and Structures 000 00000

33.0 Investments & Loans 000 00000

41.0 Grants, Subsidies 000 00000

42.0 Insurance Claims & Indemn 000 00000

43.0 Interest and Dividends 000 00000

44.0 Refunds 000 00000

91.0 Unvouchered 000 00000

Total Budget Authority $15,235 $80,000 $15,406 $0 $15,406 $0 $15,406 $15,512 0.7%

Budget Activities:

Health Insurance Tax Credit Administration $15,235 $80,000 $15,406 $0 $15,406 $0 $15,406 $15,512 0.7%

Total Budget Authority $15,235 $80,000 $15,406 $0 $15,406 $0 $15,406 $15,512 0.7%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%
IRS-100 

2.3 – Appropriation Detail Table 

Dollars in Thousands 

Health Insurance Tax Credit Administration % Change

FY 2008 FY 2008 FY 2009 FY 2010 FY 2009

Resources Available for Obligation Obligations Enacted Enacted Request to FY 2010

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Health Insurance Tax Credit Administration 10 $15,223 17 $15,235 15 $15,406 15 $15,512 0.00% 0.69%

Subtotal New Appropriated Resources 10 $15,223 17 $15,235 15 $15,406 15 $15,512 0.00% 0.69%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable

Available multi-year/no-year funds

50% Carryover

Transfers In/Out

Mandatory Appropriations - User Fees

Subtotal Other Resources

Total Resources Available for Obligation 10 $15,223 17 $15,235 15 $15,406 15 $15,512 0.00% 0.69%

3A – Health Insurance Tax Credit Administration ($15,512,000 in direct 

appropriation): The HITCA budget activity funds costs to administer a refundable tax 

credit which was created by the Trade Act of 2002 to purchase health insurance for 

eligible taxpayers. This activity maintains the administrative and direct support for the 

HITCA program office and the staff charged with managing the program for the IRS. 
IRS-101 

3.2.10 – Budget and Performance Plan 

Dollars in Thousands 

Health Insurance Tax Credit Administration

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010

Resource Level Obligations Obligations Obligations Enacted Request

Appropriated Resources $19,993 $14,850 $15,223 $15,406 $15,512

Reimbursable Resources

Mandatory Appropriations - User Fees

Total Resources $19,993 $14,850 $15,223 $15,406 $15,512

Budget Activity Total $19,993 $14,850 $15,223 $15,406 $15,512

Health Insurance Tax Credit Administration Budget Activity FY 2006 FY 2007 FY 2008 FY 2009 FY 20101

Measure Actual Actual Actual Target Target

Cost per Taxpayer Served ($) (E) $13.71 $14.90 $16.94 $17.00 Baseline

Sign-up Time (days) - Customer Engagement (Ot) 98.7 93.3 94.0 97.0 Baseline

Key: E - Efficiency Measure, Ot - Output/Workload Measure

1

As a result of the American Recovery and Reinvestment Act, a 400% increase in participation is expected. HCTC Program Office will baseline FY 2010 

targets under the expanded population.

Description of Performance 

The Department of Labor, state workforce agencies, and the Pension Benefit Guaranty 

Corporation are responsible for determining potentially eligible Health Coverage Tax 

Credit (HCTC) participants. The IRS administers the HCTC by working with health plan 

administrators to arrange direct payment of health plan premiums. 

In FY 2008, the IRS processed approximately nine million HCTC eligibility records, 

made nearly 162,000 HCTC payments on behalf of taxpayers, handled almost 89,000 

inbound HCTC telephone calls, and mailed several hundred thousand pieces of outbound 

correspondence. In addition, the IRS maintained an HCTC-program customer 

satisfaction level of nearly 91 percent. 

Cost per participant served was $16.94 in FY 2008, two dollars higher than the year-end 

target of $14.25, which was heavily influenced by a 7 percent decrease in participants 

served. Sign-up time was 94 days, which was over 3 percent below the year-end target of 

97 days (sign-up time is measured as the median number of days between the first program 

kit mailing and the first payment received from the participant). 

In FY 2008, the IRS continued to seek ways to reduce the cost of HCTC administration 

beyond the achievements made since the program was introduced in 2003. As the 

program completes its sixth year, the IRS continues to identify technical and process 

improvements to enhance existing operations and to promote economies of scale that 

drive down costs. The IRS continues to explore new infrastructure configurations to 

ensure that its processing platform is as efficient as possible. In FY 2008, the IRS: 

• Completed an evaluation of the existing HCTC infrastructure, architecture, and 

applications; 

• Explored new data management, archiving and virtualization solutions; and 
IRS-102 

• Implemented a streamlined version of a payment processing solution, automated 

the returned funds process, and expanded the fax channels. 

In addition, the IRS explored implementation of new self-service channels to provide 

taxpayers with more efficient self-service opportunities through web applications such as 

online registration and payment solutions. 
IRS-103 

Section 4 – Supporting Materials 

4A – Human Capital Strategy 

Introduction 

With over 100,000 employees located nationwide, the IRS is the largest bureau of the 

Department of the Treasury. Over 73 percent of the IRS budget funds human capital 

costs. 

The IRS workforce job satisfaction rate was 72 percent, higher than most other federal 

agencies, according to the Office of Personnel Management’s Federal Human Capital 

Survey. Management improvements such as leadership coaching, tuition assistance 

reimbursements, and continuing professional education have contributed to the job 

satisfaction rate. 

FY 2010 Challenges 

The IRS is taking action to ensure succession planning and an effective workforce for the 

future. Workforce and talent shortages are expected from the departures of employees 

eligible for retirement. Workforce renewal is a constant challenge requiring continued 

improvements to remain competitive with the private sector and other government 

entities. To achieve its performance goals, the IRS must attract and retain the “best and 

the brightest” and continue to be a “first choice” employer where talented people want to 

work and can excel in a culture of high performance and empowerment. The IRS is 

identifying current and future skill set gaps so strategies can be developed to retrain and 

reposition employees and attract and recruit employees with the required skills. 

Strategic Alignment 

In FY 2008, the IRS updated its Strategic Plan to identify the goals and objectives to 

guide the agency from FY 2009 through FY 2013. The plan guides the IRS work by 

emphasizing two overarching goals, improving service to taxpayers to make voluntary 

compliance easier and enforcing the law to ensure everyone meets their obligation to pay 

taxes. These goals are supported by a strategic foundation in the critical area of human 

capital management. 

The IRS aligns human capital strategy with the IRS tax administration mission and goals 

and formulates its budget and Strategy Program Plans to address critical future 

challenges. In August 2008 the Commissioner established the Workforce of Tomorrow

task force to address recruitment and retention issues so that the IRS has the necessary 

leadership and workforce to meet future challenges. 
IRS-104 

Mission Critical Occupation Attrition and Retirement Challenges 

Specifically, the IRS needs to recruit and retain a multi-generational workforce. These 

“multi-generations” are characterized by very different needs within the workplace. 

Currently, the IRS is facing a 56 percent projected attrition rate for upper management, 

with 39 percent of the IRS executives already eligible to retire, and approximately 

47 percent of the SES workforce eligible to retire by 2010. Ensuring leadership 

continuity continues to be one of the IRS key areas of focus. 

Closing Competency Gaps in Mission Critical Occupations 

Projected attrition and current hiring rates show that through 2018, IRS faces a shortfall 

of over three thousand leaders. The IRS will need to hire approximately one manager per 

day through 2018, to successfully contend with this shortfall and fill the growing gaps in 

leadership competencies. The IRS is striving to be a ‘first choice’ employer. Sustaining 

modernization efforts and significant organizational improvements depends on a 

maintaining a highly skilled leadership cadre. The IRS is addressing the projected gaps 

and challenges through leadership succession planning. 

Leadership succession planning objectives will: 

• Identify and develop leaders at all levels with the skills to consistently deliver the 

IRS mission and achieve the IRS Strategic Goals and Objectives; 

• Support the IRS, Human Capital Office (HCO) and Business Unit Strategic Plans 

through leaders who promote employee engagement, customer satisfaction, and 

produce business results; and 

• Focus on identifying and developing high-potential employees, early in their 

career, for all leader levels. 

Also, the IRS has assessed the competencies needed by Revenue Agents assigned to the 

Small Business/Self-Employed program. This assessment reviewed both specific, 

technical training offered and on-the-job training provided at the workplace to ensure 

employees are mastering the necessary skills from entry-level to full performance levels. 

Additional competency assessments are needed in other mission critical occupations. 

Major Human Capital Occupations/Functions Contracted 

The Employment Operations and Compliance offices utilize contract workers to fill 

short-term needs during periods of extensive hiring, workload transition, and heavy 

volumes of workload. During FY 2009 contract workers will be used to supplement 

Employment Operations and Compliance staff in IRS employment offices. The IRS also 

utilizes contract workers to review and prepare personnel records and files for employees 

who are currently eligible to retire (more than 12,000) as well as those who will become 

eligible during the next year. This review detects potential errors that could impact an 

employee's retirement eligibility, insurance and beneficiary information. This upfront 

work allows the retirement specialists to provide a quicker response to employees 

requesting retirement estimates and retirement paperwork processing. Faster processing 
IRS-105 

of retirement paperwork ensures timely payments of retirement annuities. Contract 

workers will continue to work on this project in FY 2009. 

Proposed Organizational Changes 

To accomplish both short-term and long-term improvements, the Workforce of Tomorrow 

task force is focusing on six critical human capital areas: 

 

• Valuing and retaining people; 

• Planning a dynamic hiring strategy; 

• Attracting the best candidates internally and externally; 

• Streamlining hiring; 

• Growing future leaders; and 

• Enhancing the role of managers. 
IRS-106 

4B – Information Technology (IT) Strategy 

The IRS Information Technology (IT) investment strategy, known as the Modernization 

Vision & Strategy (MV&S), drives IT investments based on strategic priorities for 

modernizing front-line tax administration for the Submission Processing, Manage 

Taxpayer Accounts, Customer Service, Reporting Compliance, Filing and Payment 

Compliance, Criminal Investigation (CI), Internal Management, and Chief Counsel 

business domains. The crosscutting service domains—Infrastructure, Security Services 

and Privacy, Data Strategy, and Common Business Services—address the infrastructure 

implications of the business domain investments and identify opportunities for leveraging 

common solutions, platforms, data sources, and system components across the enterprise. 

IRS updates the MV&S Five-Year Plan annually to reflect the full scope of tax 

administration functions as well as changing business priorities. 

The IRS completed the first cycle of MV&S portfolio planning activities in FY 2006. 

MV&S also developed the Enterprise Transition Plan (ETP). The ETP is a five-year plan 

defining how existing and proposed investments align with the overall vision and strategy 

of the IRS Enterprise Architecture. It is updated annually and submitted to Treasury at 

the end of the fiscal year, ensuring decision-maker visibility into valuable information for 

organization-wide planning. 

MV&S and the ETP: 

• Facilitate ongoing collaboration between IT and business leadership; 

• Leverage existing systems and investments; 

• Emphasize the delivery of smaller, incremental releases; and 

• Unify the portfolio-level view of investments. 

 The IRS will continue maturing the IT portfolio planning processes, aligning the IRS 

Strategic Plan with discrete investments, collectively supporting tax administration, 

strengthening technology infrastructure, and ensuring security and privacy. 

In addition to the IT investment strategy, the IRS has an integrated governance and 

project control structure that organizes all IT projects into a tiered Project Management 

Office (PMO) structure for regular status reporting, review, and support. The newly 

implemented Enterprise Governance Model reflects industry best practices, assigning all 

projects to an appropriate governance body for oversight. The Enterprise Governance 

Model includes all IT projects regardless of dollar value or life cycle phase. This model 

empowers governance bodies to make project cost, schedule, and scope decisions for “at 

risk” projects requiring rigorous oversight. For projects with no identified problems or 

issues in a given reporting period, the model promotes accountability and decisionmaking at the program and project level, specifying the appropriate thresholds and 

governance bodies for elevating issues. 
IRS-107 

The established IT investment strategy, complemented by an integrated business/IT 

governance structure, ensures the appropriate selection of IT investments to support the 

mission and vision of the IRS and the Department of the Treasury. 
IRS-108 

4.1 – Summary of IT Resources Table 

Dollars in Millions 

 Internal Revenue Service

 Table 4.1

 FY 2010 Congressional Submission 

Information Technology Investments

FY 2007 FY 2008 FY 2009 % Change FY 2010 % Change 

& Earlier from FY08 to from FY09 to

Major IT Investments / Funding Source Budget Activity Enacted Enacted Enacted FY09 Request FY10

Information Appeals Automation Environment (AAE) Services 38.774 13.741 14.784 7.6% 15.108 2.2%

Information Automated Collection System (ACS) - Major Services 13.517 4.613 6.216 34.7% 16.142 159.7%

Information Business Master File Services 64.171 13.121 13.291 1.3% 13.604 2.4%

Information Counsel Automated Systems Environment (CASE) Services 55.534 27.501 27.500 0.0% 27.937 1.6%

Information Criminal Investigation Management Information System (CIMIS) - Major Services 3.086 1.361 0.807 -40.7% 0.808 0.1%

IRS Enforcement 20-0913-0-1-999 0.800 0.815 0.561 -31.2% 0.561 0.0%

IRS Operations Support 20-0919-0-1-803 2.286 0.546 0.246 -54.9% 0.247 0.0%

Information 

Customer Account Data Engine (CADE) Technology 

Investments 571.359 80.158 119.605 49.2% 105.173 -12.1%

Information 

IRS BSM 20-0921-0-1-803 Technology 

Investments 509.056 68.000 100.900 48.4% 102.154 1.2%

IRS Taxpayer Services 20-0912-0-1-803 10.895 2.320 2.340 0.9% 2.600 11.1%

Information IRS Operations Support 20-0919-0-1-803 Services 51.408 9.838 16.365 66.3% 0.419 -97.4%

Information e-Services Services 85.813 15.090 13.880 -8.0% 14.005 0.9%

Information Electronic Fraud Detection System (EFDS) Services 208.351 12.374 12.135 -1.9% 12.268 1.1%

Information IRS Operations Support 20-0919-0-1-803 Services 141.921 8.874 8.496 -4.3% 8.611 1.4%

IRS Operations Support (EITC) 20-09E9 66.430 3.500 3.639 4.0% 3.657 0.5%

Information Electronic Management System (EMS) Services 192.208 6.848 5.704 -16.7% 5.760 1.0%

Enterprise Data Access Strategy (EDAS) (Formerly:Enterprise Data Information 

Warehouse) Services 13.988 5.421 5.349 -1.3% 5.423 1.4%

IRS Operations Support (EITC) 20-09E9 0.000 0.000 0.000 0.0% 0.000 0.0%

IRS Operations Support 20-0919-0-1-803 13.988 5.421 5.349 -1.3% 5.423 1.4%

Information Excise Files Information Retrieval System (ExFIRS) - Major Services 0.471 0.000 0.480 0.0% 0.492 0.0%

All External Exise Tax e-File & Compliance (ETEC) - Major Funding 7.927 0.000 0.000 0.0% 0.000 0.0%

Information 

Filing and Payment Compliance (F&PC) (Blended) Technology 

Investments 112.609 5.709 5.535 -3.0% 0.000 -100.0%

Information 

IRS BSM 20-0921-0-1-803 Technology 

Investments 99.878 0.000 0.000 0.0% 0.000 0.0%

IRS Taxpayer Services 20-0912-0-1-803 0.662 0.240 0.244 1.7% 0.000 -100.0%

Information IRS Operations Support 20-0919-0-1-803 Services 12.069 5.469 5.291 -3.3% 0.000 -100.0%

Information Financial Management Information System (FMIS) Services 8.331 5.619 3.437 -38.8% 3.499 1.8%

Information Implement RRP (incorporates EFDS replacement) Services 0.000 0.000 0.000 0.0% 18.100 100.0%

Information Individual Master File (IMF) Services 50.240 11.869 14.977 124.0% 15.280 4.3%

Information Operations Support (EITC) Services 0.000 0.000 0.264 100.0% 0.270 2.3%

Information Operations Support Appropriation Services 50.240 11.869 14.713 24.0% 15.010 2.0%
IRS-109 

Continuation – 4.1 – Summary of IT Resources Table 

Dollars in Millions 

Information Technology Investments

FY 2007 FY 2008 FY 2009 % Change FY 2010 % Change 

& Earlier from FY08 to from FY09 to

Major IT Investments / Funding Source Budget Activity Enacted Enacted Enacted FY09 Request FY10

Information Information Returns Processing (IRP) Services 32.880 7.115 7.860 10.5% 8.062 2.6%

Information Integrated Collection System (ICS) Services 25.460 7.745 7.533 -2.7% 9.099 20.8%

Information Integrated Customer Communications Environment (ICCE) Services 355.662 14.653 14.317 -2.3% 16.612 16.0%

Information Integrated Data Retrieval Systems (IDRS) Services 96.600 15.741 19.079 21.2% 19.534 2.4%

IRS Business 

Integrated Financial System/CORE Financial System (IFS) Systems 

Modernization 285.860 15.123 15.742 4.1% 15.857 0.7%

Information 

IRS BSM 20-0921-0-1-803 Technology 

Investments 0.000 0.000 0.000 0.0% 0.000 0.0%

IRS Taxpayer Services 20-0912-0-1-803 47.317 0.000 0.000 0.0% 0.000 0.0%

Information IRS Operations Support 20-0919-0-1-803 Services 238.543 15.123 15.742 4.1% 15.857 0.7%

Information Integrated Submission and Remittance Processing System (ISRP) Services 46.880 16.774 17.802 6.1% 17.937 0.8%

Information Interim Revenue Accounting Control System (IRACS) - BAC 99 Services 1.484 0.935 1.462 56.4% 1.494 2.2%

Information 

Modernized e-File (MeF) Technology 

Investments 0.000 0.000 44.974 100.0% 70.796 57.4%

Information 

IRS BSM 20-0921-0-1-803 Technology 

Investments 0.000 0.000 30.500 100.0% 56.146 84.1%

IRS Taxpayer Services 20-0912-0-1-803 0.000 0.000 0.000 100.0% 0.000 0.0%

IRS Enforcement 20-0913-0-1-999 0.000 0.000 0.000 100.0% 0.000 0.0%

Information IRS Operations Support 20-0919-0-1-803 Services 0.000 0.000 14.474 100.0% 14.650 1.2%

Reporting Compliance Case Management System (RCCMS) (Formerly Information 

TE/GE Reporting and Electronic Exmaination System (TREES) Services 0.000 0.000 3.993 100.0% 4.030 0.9%

Information Service Center Recognition/Image Processing System (SCRIPS) Services 59.316 15.539 16.700 7.5% 16.817 0.7%

Information Tax Return Database (TRDB) - BAC 99 Services 27.203 4.039 5.095 26.1% 5.208 2.2%

Information Travel Reimbursement and Accounting System (TRAS) - BAC 99 Services 2.949 1.350 0.000 -100.0% 0.000 0.0%

Information Web Currency and Banking Retrieval System (WebCBRS) Services 0.000 0.000 8.490 100.0% 7.755 -8.7%

Web Requisition Tracking System /Integrated Procurement System Information 

(WebRTS/IPS) Services 0.000 0.000 5.890 100.0% 5.920 0.5%

Subtotal, Major IT Investments 1/ 2,360.673 302.439 412.637 458.051 452.720 2.629

Non-Major IT Investments 2/ 950.851 697.891 559.427 -19.8% 656.693 17.4%

Infrastructure Investments 1,623.867 924.599 1,030.874 11.5% 1,043.908 1.3%

IRS Mainframes and Servers Services & Support (Formerly: IRS/Data Information 

Center Systems and Services (Consol) Services 570.212 431.237 510.515 18.4% 510.980 0.1%

Information IRS/End User Systems and Services Services 609.100 239.157 258.484 8.1% 266.487 3.1%

Information IRS/Telecommunications Systems Services Services 444.555 254.205 261.875 3.0% 266.441 1.7%

Enterprise Architecture 8.633 4.654 4.793 3.0% 4.830 0.8%

Total IT Investments 4,944.024 1929.583 2,007.731 4.0% 2,158.151 7.5%
IRS-110 

4.2 – Program Assessment 

Program Name: Tax Collection 

OMB Major Findings/Recommendations 

• The IRS has made strides in improving the overall efficiency of the Collection 

Program. However, the IRS must continue its efforts to improve its inventory 

delivery system to make greater progress toward achievement of its long-term 

performance goals. 

• The IRS has taken various actions to improve the Collection Program's systemic 

capabilities to increase the number of accounts worked and revenue collected. The 

IRS must continue work that links specific program improvements to desired 

outcomes such as voluntary compliance. 

• The IRS has made considerable improvements to its strategic planning process by 

linking its budget to expected levels of performance. The IRS must progress in 

developing IRS-wide plans for its key programs, including Collection, that 

include overall resource impacts and results in order to provide management with 

necessary information to make day-to-day decisions. 

Bureau Actions Planned or Underway 

• Allowing the Enhanced Inventory Delivery System (EIDS) to analyze and direct 

cases earlier in the Collection process by enabling it to route all Collection work 

generated after the first notice is issued. 

• Improving Collection workload selection and delivery by developing newer more 

sophisticated decision analytics to route cases earlier and faster to the appropriate 

employees for resolution. The first new iteration of analytics will be programmed 

and functional in January 2009. The second phase will be a part of the Enhanced 

Inventory Delivery System (EIDS) project. 

• Developing an IRS-wide Collection Program plan for 2009 that includes 

resources and results for all Collection activities, including a stronger link 

between program resources and outcomes. The Enterprise Collection Plan for 

FY 09 was completed, finalized, and approved in August, 2008. The plan includes 

FY 09 targets and projection for all major Collection work streams within SB/SE 

and W&I. 
IRS-111 

Program Name: Earned Income Tax Credit

OMB Major Findings/Recommendations 

• The program has failed to reduce EITC erroneous payments to acceptable levels. 

While IRS prevents roughly $1 billion in erroneous EITC payments per year, 

27 to 32 percent of all EITC payments were still made in error for 1999. 

• IRS has a strong planning process closely linked to its budget process, but it has 

not yet used outcome information for this program to set performance targets that 

allow it to demonstrate results. 

• IRS has made numerous management improvements in recent years. However, 

its financial management systems do not provide the information needed to make 

effective day-to-day management decisions. 

Bureau Actions Planned or Underway 

• IRS will require high-risk EITC applicants to pre-certify that the children claimed 

on their returns are really qualifying children under EITC. Incorrectly claimed 

qualifying children have been a major source of EITC error. High risk applicants 

will be identified through databases such as the Federal Case Registry 

(information on child custody) and by focusing on taxpayers with characteristics 

linked to high error rates in compliance studies (e.g., relatives other than parents 

who claim a child for EITC purposes). 

• Improve program performance by conducting 500,000 examinations of EITC 

returns per year based on enhanced case selection systems. IRS will deliver its 

annual base EITC compliance programs including processing approximately 

400,000 math errors, conducting 500,000 examinations and reviewing 350,000 

underreporter cases to protect over $2.6 billion annually, while also improving 

case scoring. 

• Improve program performance by identifying paid tax return preparers with high 

EITC error rates and using education and enforcement procedures to improve 

their performance. 
IRS-112 

Program Name: Submission Processing

OMB Major Findings/Recommendations 

• More Americans are electronically filing their taxes. Electronic filing is growing 

more than 10 percent per year. However, this growth is not sufficient for IRS to 

meet the legislative goal of 80 percent electronic filing. Congress has not yet 

acted on the Administration’s proposals to accelerate the increase in electronic 

filing. 

• Every return converted from paper to electronic filing saves the IRS $2.15 in 

processing costs. More importantly, electronically filed returns have a less than 

one percent error rate compared to five percent for paper filed returns, saving 

taxpayers time and money. Finally, according to the annual American Customer 

Satisfaction Results report electronic filers have high satisfaction rates. 

• Based on IRS’ recently completed tax gap study, approximately 13 percent of 

refund dollars (excluding earned income tax credit refunds) are paid in error. 

With current third party reporting and technology, IRS is unable to identify and 

prevent these errors during processing. 

Bureau Actions Planned or Underway 

• IRS currently projects the annual electronic filing rate growth to range from 

2.1 percent to 5.7 percent through FY 2012. At the current growth rate, the IRS 

projects the 80 percent electronic filing rate will not be achieved until sometime 

after 2015. 

• The Small Business Burden Model (SBBM) survey is currently underway. The 

data from this survey will allow IRS to estimate taxpayer burden for income and 

employment tax compliance for small business and self employed taxpayers. 

These estimates will complement the estimates of income tax compliance burden 

for individual taxpayers (both wage and investment and self employed) using the 

Individual Taxpayer Burden Model. The extension period for partnership and 

fiduciary returns has been changed from 6 months to 5 months. This change 

requires these flow-through entities to file returns and provide K-1s to 

shareholders by September 15, providing the Form 1040 filers with the data they 

need to file an accurate return by October 15. Form 94X regulations were 

published. This series of forms (Form 941X, 943X, 944X, 945X, and 940X) 

simplify the process of amending employment tax forms by matching the 

adjustments to the period being adjusted. 

• Employ technology and operational improvements to process returns and refunds 

more accurately and efficiently by providing a single electronic pipeline for 

capturing and processing data. 
IRS-113 

• Remittance Strategy - Paper Check Conversion (RS-PCC) successfully completed 

deployment to the Memphis Consolidated Campus in June 2008. As of October 

2008, RS-PCC electronically processed over 250,000 payments, for a total of over 

$551 million at the point of receipt in lieu of transshipping to Submission 

Processing Campuses. The RS-PCC project is currently working on RS-PCC 

Release 2 activities for deployment in early 2010. 
IRS-114 

Program Name: Taxpayer Service

OMB Major Findings/Recommendations 

• IRS has significantly improved taxpayer service and maintained high levels of 

customer satisfaction in recent years. In 2001, IRS was able to answer only 

62 percent of taxpayer calls. In 2005, IRS had improved this to 83 percent with a 

94 percent customer satisfaction rate. 

• IRS continues to have trouble with the accuracy of answers. In 2004, IRS 

estimates only 80 percent of tax law calls were answered accurately (improved to 

89 percent in 2005). Accuracy is a significant challenge given the complexity of 

the tax code. 

• IRS has developed a strong set of balanced measures (quality, customer 

satisfaction, and results) to understand its taxpayer service performance. During 

the assessment, IRS added an efficiency measure (customer contacts per staff 

year) for this program. 

Bureau Actions Planned or Underway 

• An Estimated Wait Time pilot was deployed during the 2008 filing season, 

allowing approximately 60 percent of callers to receive an estimated wait time 

message. IRS is currently working on designing the optimum strategy of this 

feature in the future. Another recommended service investment is Contact 

Analytics. Full deployment of Contact Analytics is planned during FY 2009. The 

web-based application "Where's My Refund?" continues to provide an efficient 

method for taxpayers to check the status of their refunds, initiate an on-line refund 

trace, and provide an updated address if their refund was not deliverable as 

originally addressed. During 2008, the application successfully answered more 

than 38 million inquiries, which is about a 22% increase from the same period in 

2007. The IRS also introduced a Spanish language version of "Where's My 

Refund?" Over 350,000 successful responses were provided for our Spanish 

speaking taxpayers since launch of the application in January 2008. Additionally, 

the "Where's My Refund?" programming was used as a basis for developing the 

"Where's My Stimulus Payment?" web application in English and Spanish. This 

tool assisted more than 20 million taxpayers by providing the status of their 

stimulus payment. 

• Research work began on how the IRS can meet taxpayer needs by providing the 

right channel of communication and on improving IRS's understanding of 

taxpayer needs through the errors they make. A contract is underway to survey 

individual taxpayers in order to better understand taxpayer burden. Data 

collection is on schedule with final data delivery expected in Spring 2009. A 

contract was also awarded to design a multi-year research plan addressing the 

impact of service on compliance. Data collection and model building are expected 

to begin in FY 2009. 
IRS-115 

• IRS continues to make great strides in addressing its financial management 

challenges and has resolved or substantially mitigated several material 

weaknesses and other less significant weaknesses in its internal controls. IRS has 

made progress in developing its cost accounting program including the issuance 

of a service-wide cost accounting policy in 2007 that provides guidance on 

managerial cost concepts. Cost pilot projects have been initiated to explore ways 

to apply cost information to various activities, a major step forward in efforts to 

develop cost benefit information needed to make better informed management 

decisions. Throughout the remainder of FY 2009, the IRS will continue to explore 

ways to improve the use of the financial information available from the Integrated 

Financial System. 

• The IRS successfully launched 66 of the 114 Interactive Tax Law Assistant 

(ITLA) Tax Law Categories (TLC’s) for use by Field Assistance and Accounts 

Management employees to respond to customer tax law questions. Half (33) of 

the deployed TLCs were converted into the Haley-Ruleburst software. The project 

team will convert 52 Accounts Management and Field Assistance shared topics to 

Haley-Ruleburst software by July 2009. The remaining Accounts Management 

specific TLCs (29) will be converted in time for the 2010 filing season. Content 

redesign will begin in late 2009 and continue through 2010. Tax Law Categories 

will be prioritized to target topics that will have the greatest online customer 

demand. The project team will incorporate customer focus group feedback to 

maximize usability. A natural language engine will also be employed for simpler 

navigation processes. 
IRS-116 

Program Name: Taxpayer Advocate Service

OMB Major Findings/Recommendations 

• The quality of the Advocate’s casework on behalf of taxpayers has improved from 

71 percent with quality standards in 2001 to 90.5 percent in 2004. 

• Taxpayer hardship cases caused by flaws in IRS' business processes have declined 

from 217,081 in 2001 to 129,382 in 2004 as the Advocate has worked with IRS 

program managers to improve processes. 

• During the assessment, the program set goals and developed an efficiency 

measure. These include achieving a 100 percent closure-to-receipts ratio through 

2010, 95 percent case quality score by 2009, and 4.53 (out of 5) customer 

satisfaction score by 2009. Efficiency is measured by counting the reduction in 

the quantity of taxpayer problems resulting from flaws in IRS’ business processes. 

Bureau Actions Planned or Underway 

• TAS identified data limitations in implementing Phase I of a new time reporting 

system that automatically captures the amount of time spent on cases when a case 

is accessed through TAMIS. These limitations will be addressed when Phase II is 

implemented, in June, 2009. When Phase II is completed, TAMIS will provide a 

graphical front-end screen that will allow users to capture time spent on cases, 

even when TAMIS is not used (e.g., research, telephone calls, etc.). Time data, 

along with fiscal data and case complexity results, is needed before a costing 

system can be developed. In the interim, two case advocacy cost indicators have 

been developed: Closed Cases per Case Advocacy Full Time Equivalent (FTE) 

and Closed Cases per Direct FTE. 

• TAS is currently rolling out its Systemic Advocacy Management System (SAMS) 

Version 2, which includes program, procedural, and interface improvements. 

TAS made progress in its efforts to identify and rectify sources of rework 

originating from the operating divisions. The two primary areas of focus are 

Amended Returns and Combined Annual Wage Reporting. TAS continues to 

work jointly with the operating divisions to improve the systems associated with 

these issues. The recommendations center on reducing delays from the 

Examination Operating Division's "Category A" process, reducing general 

processing timeframes, improving customer service, and modernizing systems. 

The National Taxpayer Advocate is in consultation with Wage & Investment 

leadership regarding implementation of the recommendations. TAS's FY 2008 

receipts of Combined Annual Wage Reporting (CAWR) and Federal 

Unemployment Tax Act (FUTA) cases increased by 25% over case receipts 

received in FY 2007. These cases involve wage and tax reconciliation, and 

reporting compliance issues. TAS and SB/SE have identified the effect of the 

CAWR and FUTA Certification Program on TAS receipts as the targets of a 

second study. 
IRS-117 

• TAS almost attained the 2009 quality goal in FY 2008 with a cumulative quality 

rate of 89.9 percent. TAS's overall quality rate has remained constant, near 

90 percent, for the last five years. Because of the challenging operating 

environment, TAS has revised its long-term case advocacy quality goals. TAS has 

completed efforts to identify revised quality attributes to enhance case quality 

measurement standards by addressing changes in casework and processing. 

Recommendations were solicited from all employees regarding revising quality 

standards. TAS plans to test the revised standards, develop a database, create an 

application guide, and brief employees on the revised standards in FY 2009. The 

new quality standards should be implemented in FY 2010. 
IRS-118 

Program Name: Criminal Investigations 

OMB Major Findings/Recommendations 

• The tax gap, the difference for a given year between taxes legally owed and taxes 

actually paid, for 2001 (latest available figure) is estimated to be between $312 

and $353 billion. Criminal Investigation is one of the major IRS programs 

intended to minimize this revenue loss. 

• Research suggests that higher levels of criminal sentences lead to higher tax 

compliance. IRS has succeeded in raising convictions in recent years. They rose 

from 1,926 in 2002 to 2,215 in 2005. However, they remain low by historical 

standards (in 1996 convictions totaled 2,915). 

• IRS has set long-term goals and efficiency measures. However, it has difficulty 

measuring compliance in a timely manner due to the complexity and expense 

involved and in holding employees accountable for performance due to legal 

restrictions. 

Bureau Actions Planned or Underway 

• The Investigative Scanning and Document Management System (ISDM) pilot for 

the Atlanta and San Antonio filed offices began in January 2009 and will 

conclude in March 2009. Production rollout will commence in either May or June 

of 2009. The complete rollout to all field offices is still expected by December 

2010. 

• The IRS is implementing a pilot program to improve the effectiveness of the 

Suspicious Activity Report (SAR) Review Teams. The Task Forces are in 

various stages of operation, some having secured dedicated space and task force 

officers and others that continue to negotiate space and participation issues. A 

review of the initiative will take place after the second quarter of FY 2009 with 

the goal of expanding the program to additional locations in FY 2010. 

• Criminal Investigative Management Information System (CIMIS) version 2.5 is 

scheduled for release in April 2009. This version will correct identified defects 

across CIMIS and incorporate suggestions from the Field including: 

Modifications to the equipment activity, SSN masking - masking of the employee 

(or non-employee SSN), and changes requested by the Asset Forfeiture Tracking 

and Retrieval (AFTRAK) team necessary for the AFTRAK/CIMIS future 

integration. 
IRS-119 

Program Name: Examinations

OMB Major Findings/Recommendations 

• The tax gap, the difference for a given year between taxes legally owed and taxes 

actually paid, for 2001 (latest available figure) is estimated to be between $312 

and $353 billion. Examination is one of the major IRS programs intended to 

minimize this revenue loss. 

• After dropping substantially in the late 1990s, IRS’ audit rates have begun to rise 

and will continue to increase, largely through productivity growth. IRS’ audit rate 

has grown from a low of 1.49 percent (i.e., less than two returns in one hundred 

audited) in 2001 to 3.09 percent in 2005. 

• IRS has set long-term goals and efficiency measures. However, it has difficulty 

measuring compliance in a timely manner due to the complexity and expense 

involved and in holding employees accountable for performance due to legal 

restrictions. It also needs cost based efficiency measures. 

Bureau Actions Planned or Underway 

• In May 2008, a preliminary selection score analysis was completed using updated 

DIscriminant Function (DIF) scores on closed-case results from the 1040 

(individual) NRP study. The raw data from the National Research Program (NRP) 

S-Corp compliance study was made available for analysis in January 2008. 

Preliminary analysis has been completed and the draft report is under initial 

review by the Office of Tax Analysis in Treasury, along with a white paper on the 

issues involved in using the results to adjust the individual income tax 

underreporting gap. Work requests have been submitted for potential DIF formula 

and examination activity code 1120S programming changes to be implemented by 

January 2010. 

• Classification of NRP 1040 TY 2007 returns began in August 2008 with the 

initial returns delivered to examiners in October 2008. Approximately 1,000 of 

these returns have been started. NRP 1040 TY 2006: Over 78% of the 2006 Tax 

Compliance Officer and 66% of the 2006 Revenue Agent returns have been 

closed or been excluded from the NRP sample as of October 2008. 

• The IRS is anticipating achieving a 5% increase in examination starts from 

FY 2008 to 2009. The raw data from the NRP S-Corp compliance study was 

made available for analysis in January 2008. Preliminary analysis has been 

completed and the draft report is under initial review by the Office of Tax 

Analysis in Treasury, along with a white paper on the issues involved in using the 

results to adjust the individual income tax underreporting gap. The Office of 

Research, Analysis, and Statistics (RAS) is updating the tax gap estimates for TY 

2004. 
IRS-120 

Program Name: Retirement Savings Regulatory Program 

OMB Major Findings/Recommendations 

• The Internal Revenue Service cooperates with the Department of Labor and the 

Pension Benefit Guarantee Corporation to protect retirement investors and to 

ensure that retirement related tax brakes are used for the intended purposes. Tax 

breaks to retirement plans to encourage savings total more than $100 billion per 

year. 

• Preliminary data from the program's compliance study shows that retirement 

plans comply with legal standards 80 percent of the time. The IRS is working to 

improve this level by increasing enforcement efforts and improving targeting. 

This compliance study is a critical element in this effort because it gives the IRS 

better information on the sources of non-compliance. 

• IRS has had trouble processing requests for regulatory approval from retirement 

plans in a timely manner (less than 120 days). It is working to improve its 

performance in this area by implementing a new staggered schedule for retirement 

plan renewal requests and improving productivity. 

Bureau Actions Planned or Underway 

• The focused examination techniques used since January 2006 will continue to be 

used for the majority of Employee Plan (EP) examinations, allowing us to target 

noncompliant areas and perform more productive and efficient exams. The EP 

Compliance Unit (EPCU) has made over 8,400 compliance contacts since its 

inception four years ago. Through a combination of compliance contacts and 

examinations, the EPCU has secured corrections to plans totaling over $5.5 

million, collected nearly $2.5 million in excise taxes, and secured correction of 

over 26,000 W-2s. The unit continues to address emerging issues and is 

investigating additional data sources to identify future areas of non-compliance. 

IRS will continue to strengthen enforcement in this area through the 

implementation of a second EP Compliance Unit (pending resource availability), 

refinements to case selection, efficiencies from using focused examination 

techniques, case processing improvements, and use of an electronic case file 

system (TREES). 

• Deployment of TREES (the TE/GE Reporting and Electronic Examination 

System, an electronic Windows-based software program used to create and assign 

cases, work the case, document activity, and ultimately close and review the 

case), including training on its use, was completed in April 2008. Additional 

enhancements are being deployed in the first quarter of FY 2009. 
IRS-121 

• IRS is halfway through its initial six-year cycle for pre-approved plans and fiveyear cycle for individually designed plans. The process met initial goals, avoiding 

the use of examination resources to address major spikes in the inventory of 

determination letter cases. IRS successfully completed the defined-contribution 

(DC) pre-approved plan program with the review and approval of more than 780 

applications for lead plans. Review of defined-benefit pre-approved plan 

applications is now underway. Training was completed in April 2008 and 

technical guidance is available. IRS has assigned 98 of the 105 lead plans; with 23 

of those cases in or ready for second-level review. With respect to individually 

designed plans, IRS is undertaking a thorough review of the implementing 

revenue procedure for staggered remedial amendments with a goal of significantly 

simplifying the procedure. The IRS expects a large increase in applications in 

2010 and is looking at alternatives to address the processing of these cases while 

continuing to refine the process to provide faster service. 
IRS-122 

Program Name: Health Care Tax Credit Administration 

OMB Major Findings/Recommendations 

• The program's measures do not adequately capture the program's success in 

providing access to the credit to potential beneficiaries. 

• This credit has low participation. This can be attributed to the time it takes for 

other agencies to identify potentially eligible workers and for the Internal 

Revenue Service to enroll them. Another likely cause is the affordability of 

coverage to potential recipients. It is also possible that many of those identified 

as potentially eligible may ultimately not quality. 

• The IRS successfully implemented this unique tax credit in 2003. This required 

the creation of a new process outside of the normal tax filing system in a short 

timeframe. Since that time, in response to the low take up, the IRS has 

successfully reduced the cost of administering the credit by 50 percent. 

Bureau Actions Planned or Underway 

• The IRS continues working with the Pension Benefit Guarantee Corporation 

(PBGC) to provide improved access to potential beneficiaries. The IRS also 

meets regularly with the Department of Labor to ensure our respective programs 

remain compatible. The IRS continues to work with DOL and their state 

workforce agencies and state rapid response teams to ensure potential recipients 

receive timely, accurate, and appropriate information regarding the HCTC 

Program. The HCTC Program reaches out to the appropriate state workforce 

agency and/or rapid response team when notified about a Trade Act certification 

to ensure these agencies have the information they need to talk about the HCTC 

Program. We believe these actions ensure potential recipients receive the 

information they need, and results in more timely registrations with the HCTC 

Program when a potential recipient becomes fully eligible. 

• The HCTC Program has moved forward with a strategy to partner with selected 

federal agencies and other third parties to provide information about the credit 

through established outreach and communication networks. A number of 

organizations are charged with delivering information and education on behalf of 

the HCTC Program and IRS has reinvigorated partnerships with them. This 

allows the program to contact individuals earlier in the process and give these 

workers more flexibility when making decisions on their insurance needs. Upon 

enactment of new legislation, IRS will be working closely with the State 

Workforce Agencies, DOL, PBGC and other federal agencies to explore ways to 

improve access to HCTC. IRS has established a communication plan to 

communicate new provisions in the law to current and potential participants. 
IRS-123 

• The IRS made a blank payment coupon available to enrollees on the IRS.gov 

website. The blank payment coupon facilitates "supplemental" payments for 

enrollees whose health policies were subject to a premium change after they made 

their initial payment for the month - this allows the enrollees to receive the 

additional HCTC credit in the month the premium was due, rather than claiming 

the amount via the Yearly HCTC option. Additionally, the blank payment coupon 

reduces calls for enrollees who misplaced their original payment coupon, as the 

document is now available electronically. The IRS began utilizing blue returnenvelopes for enrollee payments, to expedite the processing of time-sensitive 

payments at the lockbox facility. The HCTC Program initiated a quarterly review 

of participants who had not made payment in the previous 90 days - those 

accounts that were deemed "inactive" were cancelled and those participants no 

longer receive monthly invoices. Finally, the Program reorganized the HCTC web 

presence on IRS.gov to make it more user-friendly. The IRS conducted initial 

requirement sessions to assess the feasibility of a self-service application to allow 

on-line payments. We expect that this application would decrease calls at the call 

center and provide a preferred payment channel for many of our participants. The 

implementation of such a channel warrants additional consideration in FY09, and 

will need to be timed with the implementation of any system changes to support 

an expanded HCTC. 
IRS-124 

4.3 – IRS Performance Measure Table 

The following table shows IRS performance measures achieved and projected from 

FY 2007 through FY 2010. 

Type of FY 2007 FY 2008 FY 2008 FY 2009 FY 2010 Performance Measures Measure Actual Actual Planned Planned Planned

Customer Service Representative Level of Service Oe, L 82.1% 52.8% 82.0% 70.0% 71.2%

Customer Contacts Resolved per Staff Year E 7,648 12,634 8,000 10,386 8,919

Percent of Eligible Taxpayers Who File for EITC Oe N/A N/A 75% - 80% 75% - 80% 75% - 80%

Customer Accuracy - Tax Law (Phones) Ot 91.2% 91.2% 91.0% 91.0% 91.2%

Customer Accuracy - Accounts (Phones) Ot 93.4% 93.7% 93.5% 93.5% 93.7%

Timeliness of Critical Filing Season Tax Products to the Public Ot 83.5% 92.4% 86.0% 92.0% 93.0%

Timeliness of Critical Other Tax Products to the Public Ot 84.0% 89.5% 86.0% 89.0% 90.0%

Percent Individual Returns Processed Electronically Oe, L 57.1% 57.6% 61.8% 64.0% 67.3%

Cost per Taxpayer Served ($) (HCTC) E $14.90 $16.94 $14.25 $17.00 Baseline1

Sign-Up Time (Days) - Customer Engagement (HCTC) Ot 93.3 94.0 97.0 97.0 Baseline1

Percent of Business Returns Processed Electronically Oe, L 19.1% 19.4% 20.8% 21.6% 23.4%

Refund Timeliness - Individual (Paper) Ot 98.9% 99.1% 98.4% 98.4% 98.4%

Taxpayer Self-Assistance Rate E, L 49.5% 66.8% 51.5% 64.7% 57.3%

Examination Coverage - Individual Oe, L 1.0% 1.01% 1.0% 1.0% 1.0%

Field Exam Embedded Quality Oe, L 85.9% 86.0% 87.0% 87.0% 87.1`%

Office Exam Embedded Quality Oe, L 89.4% 90.0% 90.0% 90.0% 90.9%

Examination Quality - Industry Oe, L 87.0% 88.0% 88.0% 88.0% 89.0%

Examination Quality - Coordinated Industry Oe, L 96.0% 97.0% 96.0% 96.0% 96.0%

Examination Coverage - Business Oe, L 6.8% 6.1% 6.6% 5.8% 5.1%

Examination Efficiency - Individual E, L 137 138 133 132 130

Automated Underreporter Efficiency 1,956 1,982 1,961 1,855 1,894 E, L

Automated Underreporter Coverage E, L 2.5% 2.55% 2.5% 2.5% 3.1%

Collection Coverage (Units) Ot, L 54.0% 55.2% 53.0% 54.4% 54.6%

Collection Efficiency (Units) E, L 1,828 1,926 1,835 1,872 1,776

Field Collection Embedded Quality Ot, L 84.0% 79.0% 86.0% 80.0% 83.0%

Automated Collection System Accuracy Oe 92.9% 95.3% 92.0% 92.0% 93.5%

Criminal Investigations Completed Ot, L 4,269 4,044 4,000 3,900 3,900

Number of Convictions Oe, L 2,155 2,144 2,135 2,135 2,135

Conviction Rate Oe, L 90.2% 92.3% 92.0% 92.0% 92.0%

Conviction Efficiency Rate ($) E, L $301,788 $315,751 $317,625 $317,100 $321,400

TE/GE Determination Case Closures Ot 109,408 100,050 100,600 94,000 126,000

Percent of BSM Projects within +/- 10% Cost Variance E ** 92.0% Baseline 90.0% 90.0%

Percent of BSM Projects within +/- 10% Schedule Variance E ** 92.0% Baseline 90.0% 90.0%

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

1 As a result of the American Recovery and Reinvestment Act, expecting a 400% increase in participation. HCTC Program Office will baseline FY 2010 targets under the 

expanded population.

** In FY 2007, Cost and Schedule variance was reported separately for each project release/subrelease. In FY 2008, these measures were changed to reflect an overall 

percentage of all major BSM projects that were within the +/- 10% threshold. In FY 2009, MITS is changing the methodology to include all major BSM and non-BSM 

projects. If approved, reporting will begin in FY 2010. 

 
IRS-125 

(Excluding Imputed Costs)

Health Insurance Tax Business System Credit Administration Modernization 0.2% 3.6%

Tax payer Services

20.7%

Enforcement

40.6%

Operations Support

35.0%

FY 2008 Expenses by Appropriation

FY 2008 Expenses by Category

(Excluding Imputed Costs)

IT & Telecommunications

8.8% Business Systems 

Modernization (BSM)

0.4%

Other*

10.4%

Rent Enforcement** 7.0% 41.9%

Taxpayer Service

19.0%

Health Care Tax Credit 

(HCTC) Operations Support 0.01% 12.5%

Note:

 Other includes Contractual Services, Supplies, Printing, Postage, Travel, and Training

** **Enforcement includes Non-Labor Enforcement Expense of $229M (2.1%)

****Labor Costsrepresent 71.8 % of total expenses and include Taxpayer Service, Operations Support, Enforcement, BSM, and HCTC

4.4 – Cost of IRS Operating Activities 

FY 2008 Cost of IRS Operating Activities 

The following charts provide the FY 2008 cost of IRS operating activities by 

appropriation and by major expense category. The charts include all expenditures, 

regardless of the fiscal year the funds were appropriated, that occurred in FY 2008 except 

for imputed costs (i.e., costs associated with services obtained by other agencies such as 

the Department of the Treasury and the Office of Personnel Management that are 

provided to the IRS, but are not reimbursed). 

The second chart shows the FY 2008 actual costs by major expense category. 

 
IRS-126 

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