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 

FY 2007 FY 2008

Appropriation Enacted 1 Enacted Request $ Change % Change

Taxpayer Services $2,138,238 $2,150,000 $2,150,000 $0 0.00%

Enforcement 4,686,477 4,780,000 5,117,267 337,267 7.06%

Operations Support 3,544,835 3,680,059 3,856,172 176,113 4.79%

Business Systems Modernization 212,659 267,090 222,664 (44,426) -16.63%

Health Insurance Tax Credit Administration 14,856 15,235 15,406 171 1.12%

Total Appropriated Resources $10,597,065 $10,892,384 $11,361,509 $469,125 4.31%

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

FY 2009

FY 2009 Priorities 

The Internal Revenue Service (IRS) administers America’s tax laws and collects the 

revenue that funds most federal government operations. The IRS taxpayer service 

program assists millions of taxpayers with understanding and meeting their tax 

obligations. The IRS enforcement program is aimed at deterring taxpayers inclined to 

evade their responsibilities while vigorously pursuing those who violate tax laws. 

In FY 2009, the IRS will continue efforts to implement tax compliance strategies 

addressed in Reducing the Federal Tax Gap: A Report on Improving Voluntary 

Compliance (see http://www.irs.gov/pub/irs-news/tax_gap_report_final_080207_ 

linked.pdf) and the IRS Taxpayer Assistance Blueprint (TAB) (see 

http://www.irs.gov/individuals/article/0,,id=156394,00.html) by focusing on the 

following priorities: 

• Improve voluntary compliance and reduce the tax gap by: 

o Increasing front-line enforcement resources, 

o Improving taxpayer service options, 

o Enhancing research, and 

o Implementing legislative and regulatory changes. 

• Maintain balance between taxpayer service and enforcement. 

• Invest in technology to improve infrastructure, modernize, and increase the 

productivity of existing resources. 
Table of Contents

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

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

1B – Program History and Future Outlook ............................................................... 7

Section 2 – Budget Adjustments – Internal Revenue Service..................................... 15

Program Summary by Appropriations Account and Budget Activity .................. 15

2.1 – Budget Adjustments Tables.............................................................................. 16

2A – Budget Increases and Decreases Description .................................................. 19

Budget by Strategic Outcome .................................................................................... 19

Efficiencies/Savings..................................................................................................... 22

Reinvestments.............................................................................................................. 23

Program Decreases ..................................................................................................... 26

Taxpayer Assistance Centers and Outreach......................................................... 26

Taxpayer Advocate Service................................................................................... 26

VITA Grants Program........................................................................................... 26

Business Systems Modernization .......................................................................... 26

Program Increases...................................................................................................... 27

Reduce the Tax Gap for Small Business / Self-Employed..................................... 27

Reduce the Tax Gap for Large Business............................................................... 35

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance . 39

Increase Reporting Compliance of U.S. Taxpayers with Offshore Activity.......... 41

Expand Document Matching................................................................................. 44

Implement Legislative Proposals to Improve Compliance ................................... 45

2.2 – Operating Levels Table ..................................................................................... 49

2.3 – Appropriation Detail Table............................................................................... 50

2B – Appropriation Language and Explanation of Changes.................................. 51

2C – Legislative Proposals.......................................................................................... 56

Improve Tax Administration and Other Miscellaneous Proposals........................ 57

Section 3 – Budget and Performance Plan ................................................................... 58

Taxpayer Services....................................................................................................... 58

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 ................................................................................................................ 68

2.1 – Budget Adjustments Table............................................................................... 68 

2.2 – Operating Levels Table.................................................................................... 69 

2.3 – Appropriation Detail Table.............................................................................. 70 

3A – Investigations................................................................................................... 70 

3.2.3 – Budget and Performance Plan....................................................................... 71 

3A – Exam and Collections...................................................................................... 72 

3.2.4 – Budget and Performance Plan....................................................................... 74 
3A – Regulatory........................................................................................................ 76 

3.2.5 – Budget and Performance Plan....................................................................... 77 

Operations Support .................................................................................................... 79

2.1 – Budget Adjustments Table............................................................................... 81 

2.2 – Operating Levels Table.................................................................................... 82 

2.3 – Appropriation Detail Table.............................................................................. 83 

3A – Infrastructure.................................................................................................... 83 

3.2.6 – Budget and Performance Plan....................................................................... 84 

3A – Shared Services and Support............................................................................ 85 

3.2.7 – Budget and Performance Plan....................................................................... 86 

3A – Information Services........................................................................................ 88 

3.2.8 – Budget and Performance Plan....................................................................... 90 

Business Systems Modernization............................................................................... 92

2.1 – Budget Adjustments Table............................................................................... 92 

2.2 – Operating Levels Table.................................................................................... 93 

2.3 – Appropriation Detail Table.............................................................................. 94 

3A – Business Systems Modernization..................................................................... 94 

3.2.9 – Budget and Performance Plan..................................................................... 101 

Health Insurance Tax Credit Administration........................................................ 104

2.1 – Budget Adjustments Table............................................................................. 104 

2.2 – Operating Levels Table.................................................................................. 105 

2.3 – Appropriation Detail Table............................................................................ 106 

3A – Health Insurance Tax Credit Administration................................................. 106 

3.2.10 – Budget and Performance Plan................................................................... 107 

Section 4 – Supporting Materials................................................................................ 108

4A – Human Capital Strategy Description............................................................. 108

4B – Information Technology (IT) Strategy........................................................... 112

4.1 – Summary of IT Resources Table .................................................................... 116

4.2 – PART Evaluation Tables................................................................................. 118

4.3 – IRS Performance Measure Table and Data Dictionary Link...................... 136

4.4 – Summary of IRS FY 2009 Budget Request ................................................... 137
Section 1 – Purpose 

1A – Description of Bureau Vision and Priorities 

The FY 2009 President’s Budget request supports the IRS and the Department of the 

Treasury Strategic Plans, the Taxpayer Assistance Blueprint (TAB), and the recently 

released report, Reducing the Federal Tax Gap: A Report on Improving Voluntary 

Compliance. These plans underscore IRS commitment to ensure fairness, observe 

taxpayer rights, and reduce taxpayer burden while working in a balanced manner to 

reduce non-compliance. The IRS strategic plan goals are: 

• Improve Taxpayer Service – Help people understand their tax obligations, 

making it easier for them to participate in the tax system. 

• Enhance Enforcement of the Tax Law – Ensure taxpayers meet their tax 

obligations, so that when Americans pay their taxes, they can be confident their 

neighbors and competitors are also doing the same. 

• Modernize the IRS through its People, Processes, and Technology – 

Strategically manage resources, associated business processes, and technology 

systems to effectively and efficiently meet service and enforcement strategic 

goals. 

In support of these goals, the FY 2009 IRS Budget priorities follow the guiding principle 

of Service plus Enforcement equals Compliance and sustain the IRS objectives to: 

• Simplify the tax process and improve service options for the taxpaying public; 

• Discourage and deter non-compliance with emphasis on corrosive activity by 

corporations, high-income taxpayers and other contributors to the tax gap 

including abusive domestic and off shore tax entities; and 

• Modernize information systems and business processes to maximize resources 

and improve service and enforcement. 

The IRS established a set of enterprise-wide long-term goals, which the IRS Oversight 

Board approved in March 2007. These long-term goals link to the IRS 2005-2009 

Strategic Plan and serve as overarching indicators of achieving objectives that support 

IRS mission-critical programs. 

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These goals provide focus and rigor for measuring the effectiveness of IRS programs that 

manage the nation’s tax system. The long-term goals are: 

• Increase the voluntary compliance rate, 

• Improve the electronic filing (e-File) rate, 

• Increase individual taxpayer satisfaction as measured by the American Customer 

Satisfaction Index (ACSI) score, 

• Increase level of non-revenue enforcement activity, and 

• Improve employee engagement/satisfaction. 

FY 2009 President’s Budget Request 

The FY 2009 President’s Budget request for the IRS is $11.4 billion, which is 

$469.1 million, or an increase of 4.3 percent above the FY 2008 enacted level. The 

funding request for Taxpayer Services is $2.2 billion; Enforcement is $5.1 billion; 

Operations Support is $3.9 billion; Business Systems Modernization (BSM) is 

$222.7 million; and Health Insurance Tax Credit Administration (HITCA) is 

$15.4 million. In FY 2009, the IRS budget will continue to restore enforcement activities 

targeted at improving compliance by reducing the tax gap for large businesses and small 

business/self employed, increasing reporting of compliance of domestic taxpayers with 

offshore activity, and continuing research activities. This budget request will also 

implement legislative changes to improve tax compliance. These legislative proposals 

will generate about $36 billion in revenue over the next ten years. In addition, the IRS 

will continue modernizing its technology to strengthen taxpayer service and enforcement 

programs. 

The IRS $469.1 million increase consists of: 

• $200.9 million for changes to the base, including: 

o $265.0 million for Maintaining Current Levels, 

o –$1.4 million transfer to Treasury Inspector General for Tax 

Administration, 

o –$1.0 million transfer to FinCEN, 

o –$71.4 million for efficiency savings, 

o –$22.9 million for program savings, and 

o $32.6 million in base reinvestments. 

• $268.2 million for program changes, including: 

o –$92.7 million for program changes to taxpayer assistance centers and 

outreach, Taxpayer Advocate Service, VITA grants program, and BSM 

activities; 

o $286.8 million to expand enforcement activities aimed at improving 

compliance and reducing the tax gap; 

o $51.1 million to increase support for research to determine the reasons for 

taxpayer non-compliance; and 

o $23.0 million to implement legislative proposals to improve compliance. 

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Reducing the Tax Gap 

In FY 2007, the IRS collected $2.7 trillion in taxes (gross receipts before tax refunds), 

96 percent of total federal government receipts. The IRS improved tax compliance by 

increasing enforcement and enhancing taxpayer service. From 2001 to 2007, the IRS 

increased revenue from its enforcement programs by 75 percent from $33.8 billion to an 

all-time high of $59.2 billion, yielding a 5.6 to 1 return on investment in 2007. Revenue 

growth has been greatest in the areas of corporate taxes and high income individual taxes. 

The FY 2009 President’s Budget request will support Administration and Congressional 

deficit reduction efforts by strengthening the federal government’s ability to collect more 

legally owed taxes. 

The tax gap is defined as the aggregate amount of tax liability imposed by law for a given 

tax year that is not paid voluntarily and timely. Tax liability means the amount of tax that 

would be determined for the tax year in question if all relevant aspects of the tax law 

were applied correctly to all of the relevant facts of that taxpayer’s situation. The gross 

tax gap, about $345 billion for Tax Year 2001, represents the amount of non-compliance 

with the tax laws. There are three categories of non-compliance: 

• 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 reported on a timely 

return. 

Underreporting tax liability accounts for 83 percent of the gross tax gap. 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. 

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The gross tax gap estimate, however, does not take into account taxes paid voluntarily but 

paid late, or tax collections resulting from IRS enforcement activities. Considering these 

factors, the “net tax gap” is estimated at $290 billion. 

Non-compliance 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 non-compliance is willful, 

even to the point of criminal tax evasion. Because both taxpayer service and enforcement 

are critical to improving voluntary compliance and reducing the tax gap, the IRS remains 

committed to its working equation of: 

Service + Enforcement = Compliance 

In August 2007, the Department of the Treasury and the IRS released a report, Reducing 

the Federal Tax Gap: A Report on Improving Voluntary Compliance, addressing efforts 

to improve the level of voluntary compliance with federal tax laws, which builds upon 

the Department of the Treasury’s “A Comprehensive Strategy for Reducing the Tax Gap” 

issued in September 2006. The report provides details on activities and efforts taken and 

planned to improve voluntary compliance. In addition, the report presents an outreach 

approach to ensure all taxpayers understand their tax obligations and recognizes the 

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importance of having a multi-year research program that will help the IRS understand

both the scope of and reasons for non-compliance. This report, combined with legislative 

changes and tax simplification, will guide IRS efforts to reduce the tax gap. 

Taxpayer Service and Enforcement Programs 

The IRS and its employees represent the face of the federal government to more 

American citizens than any other government agency. IRS taxpayer service programs

provide the information and tools taxpayers need to calculate and understand their tax 

obligations; collect, process, and store filed tax returns; and collect and process tax 

receipt and refunds owed. IRS enforcement activities, such as examination and 

collection, will continue to target its casework and enforcement activities to more 

effectively deliver results and drive down the tax gap. 

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

unintentional errors. Moreover, assisting taxpayers with their tax questions before they 

file their returns addresses inadvertent non-compliance and reduces burdensome postfiling 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 web site, Taxpayer Assistance Centers (TACs), 

Volunteer Income Tax Assistance (VITA) sites, and Tax Counseling for the Elderly 

(TCE) sites.

The IRS delivered Phase 1 of the 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: 

• Complexity and changes to the tax code; 

• Need for additional data on the causes of non-compliance; 

• Expanding use of third parties; 

• Scope and diversity of the taxpaying population; and 

• Keeping pace with technology and taxpayer expectations. 

IRS enforcement activities are also important for improving voluntary compliance with 

federal tax laws and implementing the Department of the Treasury’s tax gap strategy. 

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

(ROI). As shown in the table below, the proposed IRS FY 2009 enforcement initiatives 

will generate about $2.0 billion in additional annual enforcement revenue once the new 

hires reach full potential in FY 2011. 

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Return on Investment for IRS Enforcement Initiatives 

Dollars in Millions

FY 2009 Enforcement Investment Cost Revenue ROI Cost Revenue ROI

All Enforcement Initiatives $360.8 $769.0 2.1 $306.1 $2,001.1 6.5

Direct Revenue Producing Initiatives $337.8 $769.0 2.3 $283.1 $2,001.1 7.1

Reduce the Tax Gap for Small Business/Self-Employed 168.5 422.0 2.5 136.7 980.8 7.2

Increase Reporting Compliance of Domestic Taxpayers with Offshore Activity 13.7 39.5 2.9 11.3 101.9 9.0

Reduce the Tax Gap for Large Business 69.5 121.0 1.7 61.3 543.9 8.9

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance 51.1 15.1 0.3 42.3 15.9 0.4

Expand Document Matching 35.1 171.4 4.9 31.5 358.6 11.4

Other Enforcement Initiatives $23.0 $0.0 0.0 $23.0 $0.0 0.0

First Year (FY 2009) Full Performance (FY 2011)

IRS enforcement activities also yield indirect revenue by deterring non-compliance. This 

effect is more difficult to measure, but it is estimated to be at least three times the direct 

revenue impact. IRS enforcement efforts improved in virtually every area over the last 

several years. While the increase in enforcement revenue is most obvious, the increased 

audit coverage in all segments of the filing population demonstrates IRS continued 

emphasis on reductions to the tax gap. 

Fully Costing the Taxpayer Service and Enforcement Programs 

IRS taxpayer service and enforcement programs depend on support activities, such as 

information technology and rent, funded by the Operations Support appropriation. As 

shown in the following table, the IRS allocates this appropriation funding to its core 

operational program funded in the Taxpayer Service and Enforcement appropriations in 

order to reflect the full cost of operating these programs (see Section 3, Operations 

Support, for further description of the allocation methodology). 

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Taxpayer Service and Enforcement Programs 

Dollars in Thousands

Programs

FY 2007

Enacted

FY 2008

Enacted

FY 2009 

Request

1

%Change

FY 2008 to

FY 2009

Taxpayer Service $3,547,252 $3,612,833 $3,636,230 0.6%

Taxpayer Services Appropriation 2,138,238 2,150,000 2,150,000

Operations Support Appropriation 1,409,014 1,462,833 1,486,230

Enforcement $6,822,298 $6,997,226 $7,487,209 7.0%

Enforcement Appropriation 4,686,477 4,780,000 5,117,267

Operations Support Appropriation 2,135,821 2,217,226 2,369,942

Total Taxpayer Services and Enforcement $10,369,550 $10,610,059 $11,123,439 4.8%

1 The Operations Support funds allocated to the Taxpayer Service and Enforcement programs in

FY 2009 use the FY 2008 President’s Budget allocation methodology. In order to execute FY2009 spending,

the Administration is proposing language to adjust Operations Support allocations by up to 1 percent with

prior notification to the Appropriations Committees.

1B – Program History and Future Outlook 

Each year, IRS employees make millions of contacts with American 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 

non-compliant taxpayers pay their fair share. To improve voluntary tax compliance, the 

IRS must provide the proper balance of service and enforcement. 

Strategic Goal I: Improve Taxpayer Service 

Helping the public understand their tax reporting and payment obligations is the 

cornerstone of taxpayer compliance and is vital for maintaining public confidence in the 

tax system. Assisting taxpayers with their tax questions before they file their returns 

addresses inadvertent non-compliance and reduces burdensome post-filing notices and 

other correspondence from the IRS. Thus, the IRS continued to address taxpayer needs 

and make improvements in key services for taxpayers in FY 2007. 

The IRS delivered a successful 2007 filing season despite several new challenges. 

Challenges included the implementation of the Telephone Excise Tax Refund (TETR), a 

one-time payment designed to refund long distance telephone taxes introducing split 

refund capability, which provided taxpayers with more control over their refunds by 

allowing direct deposit of a refund to up to three financial accounts and making the 

necessary changes to forms and systems to accommodate late passage of provisions of 

the Tax Relief and Health Care Act of 2006. Results of the 2007 filing season include: 

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• The IRS issued more than 105 million refunds totaling more than $261 billion for 

those individual tax filers. Providing quality taxpayer service, and continuing to 

improve that service, remains a strategic priority for the IRS. 

• The overall American Customer Satisfaction Index (ACSI) score for all individual 

tax filers increased 17 points, from 51 in 1999 to 68 in 2007. The ACSI score for 

the popular IRS website, IRS.gov, increased five points over the 2005 filing

season to 74. 

• The IRS outreach and educational services were enhanced through partnerships 

between the IRS and public organizations. Through its 11,922 VITA and TCE 

sites, the IRS provided free tax assistance to the elderly, disabled, and limited 

English proficient individuals and families. Over 76,000 volunteers filed

2.63 million returns, a 14 percent increase over FY 2006. Additionally, the IRS 

established 16 new clinics in rural areas to help low income taxpayers meet their 

tax obligations. 

• More than 3.9 million taxpayers used the free services offered by the Free File 

Alliance. Home computer filing of returns increased to 22.5 million in 2007, 

while tax professional use of e-file increased 10 percent to 57.2 million returns. 

• The IRS successfully implemented TETR by delivering an integrated approach, 

which enabled the filing of over 94 million 2006 tax returns including TETR 

refund claims, of more than $4.81 billion. In addition, the IRS prevented more 

than $291 million in potential erroneous refunds with the aid of a return selection 

tool created specifically to catch questionable TETR requests. The 

comprehensive approach to administering this refund allowed the IRS to 

successfully meet taxpayer and stakeholder expectations. 

• Seventy-five percent (9 of 12) of the taxpayer service performance targets were 

met or within 98.5 percent of the target. The IRS continues its upward trend in 

most categories with over 83 percent of the taxpayer service measures exceeding 

FY 2006 levels. 

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The table below highlights IRS taxpayer service performance and workload trends for 

FY 2005 through FY 2007. 

Performance Measures and Workload Statistics by Fiscal Year 

Performance Measures FY 2005 FY 2006 FY 2007

Percent of Individuals Filing Electronically 51.1% 54.1% 57.1%

Percent of Business Returns Filed Electronically 17.8% 16.6% 19.1%

Toll Free Assistance Level of Service 82.6% 82.0% 82.1%

Toll Free Tax Law Accuracy 89.0% 90.9% 91.2%

Toll Free Accounts Accuracy 91.5% 93.2% 93.4%

Workload Statistics FY 2005 FY 2006 FY 2007

Number of IRS.gov Page Visits (in Millions) 177.0 194.0 215.0

Number of IRS.gov Page Views (in Millions) 1,259.0 1,302.0 1,350.0

"Where's My Refund?" Usage (in Millions) 22.1 24.7 32.1

To further address taxpayer needs, the IRS delivered two phases of the TAB to Congress 

and established a Taxpayer Services Program Management Office and IRS Services 

Committee to formalize integrated service investment decision-making. Research 

conducted for the Phase 2 TAB, submitted in April 2007, indicated the following: the 

majority of taxpayers who used IRS assistance indicated a willingness to use electronic 

services; fewer customers visit TACs as opposed to other options, such as phone and 

correspondence; taxpayers are most concerned with first contact resolution; and 9 out of 

10 taxpayers using IRS services in 2005 reported they would use the same method again. 

Going forward, the IRS will continue integration of the TAB Strategic Plan within 

planning and budgeting processes and will implement service-wide improvement 

initiatives and future research projects identified by the TAB. Additionally, the IRS will 

implement a multi-year research portfolio by making service-related decisions based on

taxpayer data and develop new measures for compliance, taxpayer, partner, and 

government value.

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Strategic Goal II: Enhance Enforcement of the Tax Law 

The potential for narrowing the nation’s tax gap hinges primarily on IRS efforts to 

improve compliance with tax laws. Non-compliance 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. However, some non-compliance is willful, even to the point of 

criminal tax evasion. 

FY 2007 was a record year for collections related to enforcement activities. Enforcement 

revenue from all sources rose 75 percent from $33.8 billion in FY 2001 to an all-time

high of $59.2 billion in FY 2007 (see chart below). The increased enforcement revenue 

collected resulted from the IRS focus on noncompliant activities of corporations, highincome taxpayers, and other major violators of the tax code. Targeting high-risk 

taxpayers improves IRS examination efficiency, reduces the burden on compliant 

taxpayers, and concentrates enforcement presence where needed. 

Enforcement Revenue Continues to Rise 

(Dollars in Billions) 

23.9 26.0

21.3 21.3 22.1 24.3 24.4 24.8 25.7 26.6 28.2

31.8

1.0

1.2

1.4 1.6 1.5

1.6 1.8

3.3

3.9

13.2 10.1

12.5 10.0 10.2 7.9 7.9

10.7

14.7

17.7

17.2

23.5

2.2

3.1 2.7

0

10

20

30

40

50

60

70

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

 $ Billions

Collection Document Matching Exam and Appeals

$43.1

$38.1 $37.2

$34.1 $35.2

$37.6

$32.9 $33.8 $33.8

$47.3

 $48.7

 $59.2

The IRS continues to build on its enforcement efforts, while emphasizing early 

identification of tax liabilities through increased audits and focused collection activities. 

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Since FY 2005, the IRS steadily progressed in its enforcement efforts and showed 

marked increases in performance and workload statistics, as illustrated in the table below. 

Performance Measures

FY 2005 to

FY 2006

FY 2006 to

FY 2007

Criminal Investigations Completed 1.0% 3.0%

Workload Statistics

Individual Audits 7.0% 8.0%

High-Income Audits (Total Positive Income Over $200,000) 18.0% 29.0%

Small-Business Audits (Total Gross Receipts Less Than $10 Million) 8.0% 17.0%

Collection Case Closures 15.0% 12.0%

Revenue Received from Collection Case Closures 9.0% 13.0%

Percent Change of Performance and Workload Statistics

In FY 2007, the IRS substantially enhanced its productivity by implementing 

technological and process improvements in the Automated Underreporter (AUR), 

Examination, and Compliance Services Collection Operations. Significant improvements 

made in FY 2007 included: 

• Implementing a new AUR case selection and scoring methodology for 

individuals, resulting in a 20.5 percent increase in assessments; 

• Controlling and directing incoming examination toll-free calls through an 

Intelligent Call Management system, resulting in a 6.1 percent increase in the 

level of service; and 

• Automating the process of installment agreement problem cases freed resources to 

process additional installment agreement compliance work. Over 43 percent of 

installment problem cases were handled using the new automated process. 

The IRS continued to reengineer its examination and collection procedures to reduce 

time, increase yield, and expand coverage. Emphasizing early identification of tax 

liabilities through increased audits and more focused collection activities, the IRS 

undertook the following actions in FY 2007: 

• Piloted new Automated Substitute for Return screening and batching procedures, 

with the increased efficiencies resulting in a productivity improvement of over 

156 percent, from 7.5 cases per hour to 19.2 cases per hour; 

• Increased detection of fraudulent activities and the number of recommendations 

for civil fraud penalties by 49 percent over the prior year level; and 

• Developed an employment tax strategy that includes eliminating/reducing

overlaps and gaps in processes to enhance organizational effectiveness, expanding 

work relationships with federal and state authorities, conducting studies to better 

understand the tax gap, and assessing new ways to impact taxpayer behavior. 

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Strategic Goal III: Modernize the IRS through its People, Processes and 

Technology 

The BSM program combines best practices and expertise in business solutions and 

internal management from the IRS, business, and technology sectors to develop a worldclass tax administration system that fulfills the revenue collection requirements of the 

United States as well as taxpayer needs and expectations. 

The IRS met most of its targets for BSM project deliveries and continued to adhere to 

established governance processes that ensure success in managing complex and 

complicated system development efforts. Notable modernization accomplishments for 

FY 2007 include: 

• Processed over 11 million returns and issued refunds of $11.6 billion using the 

Customer Account Date Engine (CADE). CADE processed filing season

changes, as well as the capability to handle the TETR and Form 1040 schedules. 

• Added new functionality to the Modernized e-File (MeF) system, which enhanced 

electronic filing capabilities for Forms 1065, U .S. Return of Partnership Income, 

and 1065-B, U.S. Return of Income for Electing Large Partnerships, returns and 

made all the required extender legislation changes. This resulted in the 

processing of over two million corporate, non-profit, and partnership forms. 

• Developed the Accounts Management Services (AMS) system, designed to 

deliver improved customer support and functionality by leveraging existing IRS 

applications. AMS exited the detailed design phase for Release 1.1, which 

provides address update capabilities, and Release 1.2, which provides inventory 

management capabilities. 

In FY 2007, the IRS implemented a new governance structure for all information 

technology (IT) investment projects. The new structure facilitates the ability to identify 

and address project-related issues and risks, ensuring IT investment projects deliver 

required results. As a result, in FY 2007, 92 percent of system releases were delivered 

within +/-10 percent of cost estimates, and 77 percent were delivered within 

+/-10 percent of schedule estimates. 

In addition, the IRS developed a five-year IT Modernization Vision and Strategy 

(MV&S) that addresses priorities for modernizing front-line tax administration functions. 

The strategy guides IT investment decision-making for 2007. Important aspects include: 

establishing partnerships among IT and business leadership; leveraging existing systems; 

emphasizing the delivery of smaller, incremental releases; and unifying the portfoliolevel view of investments. 

Security of infrastructure and IT systems remains a top priority for the IRS. In FY 2007, 

the IRS continued to update its systems, processes, and training efforts to ensure taxpayer 

information is properly safeguarded. The IRS also established new offices and governing 

bodies to provide direction and oversight regarding the security and protection of 

sensitive information. Highlights of security measures executed include: 

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• Implemented enterprise disk encryption, which secured 100 percent of IRS 

laptops with automatic hard drive encryption to protect data in the event of 

computer loss or theft; 

• Worked with business partners to deploy secure data transmission, an automated 

solution that eliminated the physical mailing of tape shipments to federal, state, 

and municipal tax agencies; 

• Upgraded firewall and intrusion detection devices, which strengthened the 

security posture of the network infrastructure and reduced the cost of operations 

and maintenance; and 

• Deployed mandatory information protection training for all IRS employees and 

contractors having access to sensitive information. 

FY 2009 Challenges 

The IRS continues to seek efficiencies in delivering taxpayer service and bolstering its 

enforcement efforts to improve compliance with the tax laws and, ultimately, increase tax 

revenue. Using the internet as a means of providing taxpayers access to tax information 

and services is one approach to achieving greater efficiencies. The IRS continues to seek 

alternative, cost-effective ways of improving taxpayer service and enforcement. The 

following discussion identifies some of the most significant internal and external 

challenges for the IRS. 

Improving Voluntary Compliance and Reducing the Tax Gap 

Continuing progress in restoring enforcement presence remains a high priority for the

IRS in addressing key elements of the tax gap. The FY 2009 President’s Budget request 

will enhance coverage of high-risk compliance areas. Funding will be used to target key 

areas such as critical reporting, filing, and payment within the small business and selfemployed taxpayer community, high-income taxpayers, flow-through entities (e.g., 

partnerships), and large multinational corporations. Additional resources will also 

address offshore activities of domestic taxpayers. The IRS will continue to reengineer its 

examination and collection procedures to reduce time, increase yield, and expand 

coverage. 

Measuring and understanding taxpayer non-compliance are keys to ensuring optimal 

allocation of IRS resources and allow the IRS to better understand the size and causes of 

the tax gap. The FY 2009 President’s Budget request provides for resources to support 

ongoing research studies of filing, payment, and reporting compliance to provide a 

comprehensive picture of the overall level of taxpayer compliance. Research enables the 

IRS to develop strategies to combat specific areas of non-compliance, improve voluntary 

compliance, and allocate resources more effectively to reduce the tax gap. 

The IRS also focuses on compliance by addressing the issues identified in the TAB and 

in Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance. The 

IRS maintains its commitment to high-quality taxpayer services through improvements to 

IT and targeted efficiencies. The IRS will also continue to identify opportunities for 

IRS-13 
providing quality taxpayer service at a lower cost by providing and marketing expanded 

services to increase use of the IRS.gov website and maintaining growth in e-filing, which 

improves efficiency and accuracy and ultimately reduces tax administration costs. While 

the IRS continues to address compliance problems by improving customer service and 

using traditional methods of enforcement, the FY 2009 President’s Budget request also 

includes funding to implement legislative proposals aimed at improving compliance. 

These legislative proposals would serve as enforcement tools with minimal impact on 

taxpayer burden and generate an estimated $36 billion over 10 years. 

Modernizing the IRS 

The IRS must ensure its employees possess the tools necessary to increase program

efficiency and effectiveness. The FY 2009 President’s Budget request includes funding 

to continue the modernization of IT systems and align them with the overall business 

strategy, as well as to provide IRS employees with the tools they need to administer and 

improve taxpayer service and enforcement programs. Modernizing the technology 

environment allows the IRS to address extremely high volumes, widely varying inputs 

from taxpayers, seasonal processing with significant variations in processing load, 

transaction rates on the order of billions per year, and storage capacity needs measured in 

trillions of bytes. 

The Complexity of the Tax Code 

The Internal Revenue Code contains over a million words, creating complexity for 

taxpayers. Provisions such as the alternative minimum tax create additional 

computational work for taxpayers and can be hard to interpret. The IRS must explain the 

Code in a way that taxpayers can understand if they are to comply with their tax 

obligations. In addition, the IRS must continue to find ways to effectively administer tax 

law changes in a manner that minimizes complexity, the burden on taxpayers, and the 

cost of administering the tax code. 

Achieving 80 Percent E-Filing 

The IRS continues to work toward the goal of increasing the e-file rates to 80 percent. 

For the third consecutive year, more than half (over 80 million) of all individual returns 

were filed electronically, representing an 11 percent increase over FY 2006. More than 

16,900 large corporations, subject to the electronic filing mandate, successfully e-filed 

their returns in 2007. The IRS processed this volume of very complex returns and 

accepted and acknowledged receipt well within its 24-hour turnaround standard. The IRS 

also continues to work on finding ways to encourage more taxpayers to use electronic 

filing options. 

IRS-14 
Section 2 – Budget Adjustments – Internal Revenue Service 

The IRS Budget request for FY 2009 is $11,361,509,000 in direct appropriations and 

92,922 FTE. This is an increase of $469,125,000 or 4.3 percent, and 1,799 FTE, over the 

FY 2008 enacted level of $10,892,384,000 and 91,123 FTE. 

Program Summary by Appropriations Account and Budget Activity 

Dollars in Thousands 

FY 2007 FY 2008 

Appropriation Enacted 1 Enacted Request $ Change % Change

Taxpayer Services $2,138,238 $2,150,000 $2,150,000 $0 0.00%

 Pre-filing Taxpayer Assistance and Education 576,537 645,375 617,326 (28,049)

(44,426)

-4.35%

 Filing and Account Services 1,561,701 1,504,625 1,532,674 28,049 1.86%

Enforcement 4,686,477 4,780,000 5,117,267 337,267 7.06%

 Investigations 576,785 593,794 603,466 9,672 1.63%

 Exam and Collections 3,959,741 4,038,309 4,363,826 325,517 8.06%

 Regulatory 149,951 147,897 149,975 2,078 1.41%

Operations Support 3,544,835 3,680,059 3,856,172 176,113 4.79%

 Infrastructure 845,203 843,720 883,325 39,605 4.69%

 Shared Services and Support 1,179,216 1,170,686 1,243,703 73,017 6.24%

 Information Services 1,520,416 1,665,653 1,729,144 63,491 3.81%

Business Systems Modernization 212,659 267,090 222,664 -16.63%

Health Insurance Tax Credit Administration 14,856 15,235 15,406 171 1.12%

Total Appropriated Resources $10,597,065 $10,892,384 $11,361,509 $469,125 4.31% 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

FY 2009

IRS-15 
2.1 – Budget Adjustments Tables 

Dollars in Thousands 

Internal Revenue Service 

FTE $000

FY 2008 Enacted 91,123 $10,892,384

Changes to Base:

Maintaining Current Levels $264,985

Pay Annualization 57,854

Pay Inflation Adjustment 152,303

Non-Pay Inflation Adjustment 54,828

Transfers ($2,370)

(1,370)

(1,000)

(976) ($94,249)

(769) (71,356)

(207) (10,300)

(12,593)

(946)

(312) ($92,691)

(262) (31,200)

(25) (7,711)

(8,000)

(25) (45,780)

Transfer to TIGTA

Transfer to FinCEN

Efficiencies/Savings

Efficiency Savings

Increase e-File Savings

Non-Recur Savings

Base Reinvestments 30 $32,604

Increase Efficiency through Submission Processing Consolidations 2,006

Address Correspondence Inventory 30 2,457

Fully Fund Postage Base 28,141

Subtotal Changes to Base $200,970

Total FY 2009 Base - Current Services 90,177 $11,093,354

Program Changes:

Program Decreases:

Taxpayer Assistance Centers and Outreach

Taxpayer Advocate Service 

Volunteer Income Tax Assistance Grants Program

Business System Modernization

Program Increases - Enforcement Initiatives 3,057 $360,846

Reduce the Tax Gap for Small Business / Self-Employed 1,608 168,498

Reduce the Tax Gap for Large Businesses 519 69,488

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance 393 51,058

Increase Reporting Compliance of U.S. Taxpayers with Offshore Activity 124 13,697

Expand Document Matching 413 35,060

Implement Legislative Proposals to Improve Compliance 23,045

Subtotal FY 2009 Program Changes 2,745 $268,155

Total FY 2009 Request 92,922 $11,361,509

IRS-16 
Taxpayer Service Program Summary Budget Adjustment Table

(Includes Both Direct Costs in the Taxpayer Services Appropriation

and Indirect Costs in the Operations Support Appropriation) 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 36,066 $3,612,833

Changes to Base:

Maintaining Current Levels $86,261

Pay Annualization 18,332

Pay Inflation Adjustment 48,838

Non-Pay Inflation Adjustment 19,091

Transfers ($523)

(523)

(298) ($37,415)

(91) (14,522)

(207) (10,300)

(12,593)

(268)

(287) ($46,911)

(262) (31,200)

(25) (7,711)

(8,000)

(249) ($44,220)

Transfer to TIGTA

Efficiencies/Savings

Efficiency Savings

Increase e-File Savings

Non-Recur Savings

Base Reinvestments 30 $19,294

Increase Efficiency through Submission Processing Consolidations 2,006

Address Correspondence Inventory 30 2,457

Fully Fund Postage Base 14,831

Subtotal Changes to Base $67,617

Total FY 2009 Base - Current Services 35,798 $3,680,450

Program Changes:

Program Decreases

Taxpayer Assistance Centers and Outreach

Taxpayer Advocate Service 

Volunteer Income Tax Assistance Grants Program

Program Increases - Enforcement Initiatives 38 $2,691

Reduce the Tax Gap for Small Business / Self-Employed 38 2,691

Subtotal FY 2009 Program Changes

Total FY 2009 Request1 35,549 $3,636,230

1 The Operations Support funds allocated to the Taxpayer Service and Enforcement programs in FY 2009 use the FY 2008 

President’s Budget allocation methodology. In order to execute FY 2009 spending, the Administration is proposing language to

adjust Operations Support allocations by up to 1 percent with prior notification to the Appropriations Committees.

IRS-17 
Enforcement Program Summary Budget Adjustment Table 

(Includes Both Direct Costs in the Enforcement Appropriation 

and Indirect Costs in the Operations Support Appropriation) 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 54,682 $6,997,226

Changes to Base:

Maintaining Current Levels $177,048

Pay Annualization 39,170

Pay Inflation Adjustment 102,390

Non-Pay Inflation Adjustment 35,488

Transfers ($1,847)

(847)

(1,000)

(677) ($56,683)

(677) (56,683)

(677)

Transfer to TIGTA

Transfer to FinCEN

Efficiencies/Savings

Efficiency Savings

Base Reinvestments $13,310

Fully Fund Postage Base 13,310

Subtotal Changes to Base $131,828

Total FY 2009 Base - Current Services 54,005 $7,129,054

Program Changes:

Program Increases - Enforcement Initiatives 3,019 $358,155

Reduce the Tax Gap for Small Business / Self-Employed 1,570 165,807

Reduce the Tax Gap for Large Businesses 519 69,488

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance 393 51,058

Increase Reporting Compliance of U.S. Taxpayers with Offshore Activity 124 13,697

Expand Document Matching 413 35,060

Implement Legislative Proposals to Improve Compliance 23,045

Subtotal FY 2009 Program Changes 3,019 $358,155

Total FY 2009 Request1 57,024 $7,487,209

1 The Operations Support funds allocated to the Taxpayer Service and Enforcement programs in FY 2009 use the FY 2008 

President’s Budget allocation methodology. In order to execute FY 2009 spending, the Administration is proposing language to

adjust Operations Support allocations by up to 1 percent with prior notification to the Appropriations Committees.

IRS-18 
2A – Budget Increases and Decreases Description 

Treasury Strategic Goals and Outcome 

All of the IRS FY 2009 initiatives support the Treasury Strategic Goal of “Effectively 

Managed U.S. Government’s 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 2009 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.

For detailed information about the FY 2007-2012 Treasury Strategic Plan, please go to 

http://www.treasury.gov/offices/management/budget/strategic-plan/2007-

2012/home.html

Budget by Strategic Outcome 

Dollars in Thousands 

Treasury Strategic Goal

Treasury Strategic Objective

Treasury Strategic Outcome

Effectively Managed U.S. Government Finances $10,626,721 $11,091,461 4.4%

Cash resources are available to operate the government 10,626,721 11,091,461 4.4%

Revenue collected when due through a fair and uniform application of the 

law 

10,626,721 11,091,461 4.4%

Prevented Terrorism and Promoted the Nation's Security Through

Strengthened International Financial Systems $265,663 $270,048 1.7%

Pre-empted and neutralized threats to the international financial systems and 

enhanced U.S. national security

265,663 270,048 1.7%

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 rogue regimes, individuals, and their support

networks

265,663 270,048 1.7%

Total $10,892,384 $11,361,509 4.3%

FY 2008 

Enacted

FY 2009

Request

Percent

Change

Treasury Strategy for Reducing the Tax Gap 

The IRS FY 2009 Budget request directly supports its Strategic Plan and includes the 

initiatives directly aimed at increasing voluntary compliance and reducing the tax gap. 

The IRS FY 2009 initiatives support the IRS report, Reducing the Federal Tax Gap: A 

Report on Improving Voluntary Compliance, which builds upon the Department of the 

Treasury’s “Comprehensive Strategy for Reducing the Tax Gap”. 

IRS-19 
The Treasury Tax Gap Strategy consists of seven components that form the basis for the 

detailed compliance improvement efforts that were set forth in the IRS Report. The 

seven Treasury Tax Gap Strategy components are: 

1. Reduce Opportunities for Evasion 

The focus of this component is to identify legislative proposals that would reduce 

evasion opportunities and improve the efficiency of the IRS. It also includes the 

development of regulations and other published guidance to clarify ambiguous 

areas of the law, target specific areas of non-compliance, and prevent abusive 

behavior. 

2. Make a Multi-Year Commitment to Research 

Research is an essential component to identify sources of non-compliance and to 

understand the relationship between taxpayer burden, compliance, and customer 

service on voluntary compliance. 

3. Continue Improvements in Information Technology (IT) 

Improvements in IT are critical to providing the IRS with better tools to increase 

compliance through early detection, better case selection, and better case 

management. 

4. Improve Compliance Activities 

The focus of this component is to increase and enhance activities in examination, 

collection, and document matching, which will allow the IRS to better prevent, 

detect, and remedy non-compliance. These activities will increase compliance not 

only among those directly contacted by the IRS, but also among those who will be 

deterred from non-compliant behavior as a consequence of a more visible IRS 

enforcement presence.

5. Enhance Taxpayer Service 

The importance of this component is to help taxpayers avoid making 

unintentional errors. Through new and existing tools, such as the IRS website, the 

IRS provides taxpayers with assistance and clear and accurate information before 

they file their tax returns, thus reducing unnecessary post-filing contacts.

6. Reform and Simplify the Tax Law 

The focus of this component is to simplify the tax law, forms, and procedures so 

that unintentional errors could be reduced. The complexity of the current tax code 

causes unintentional errors due to lack of understanding. Simplifying the tax code 

also would reduce the opportunities for intentional evasion and make it easier to 

administer the tax laws. The Department of the Treasury and the IRS will 

continue to recommend additional legislative changes to Congress that will reduce 

taxpayer burden. 

IRS-20 
7. Coordinate with Partners and Stakeholders 

The purpose of this component is to share information and compliance strategies 

by enhancing coordination between the IRS and state and foreign governments, as 

well as practitioner organizations, including bar and accounting associations. 

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 fully costs the salary, benefits, and support costs 

needed for each FTE. 

Total Changes to Base +$200,970,000 / -946 FTE 

Maintaining Current Levels (MCLs)

+$264,985,000 / 0 FTE

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

This amount includes: 

• $57,854,000 to fund annualization of the January 2008 federal pay raise in FY 2009; 

• $152,303,000 to fund the proposed January 2009 federal pay raise; and 

• $54,828,000 to fund the FY 2009 non-pay inflation adjustment for items such as rent, 

utilities, communications, contracts, travel, supplies, and equipment. 

Transfer to Treasury Inspector General for Tax Administration (TIGTA)

-$1,370,000 / 0 FTE

The IRS Restructuring and Reform Act of 1998 (RRA 98), P.L. 105-206, eliminated the 

IRS Office of the Chief Inspector and transferred its responsibilities to a new TIGTA 

Office. Once TIGTA was established in FY 1999, the IRS and TIGTA signed a 

Memorandum of Understanding whereby the IRS would continue providing services until 

the costs could be determined and budgetary transfers made. 

In FY 2009, the IRS budget proposes to permanently transfer $1.4 million from the IRS 

to TIGTA to provide base funding for its costs associated with building operations and 

support services such as public transportation subsidy, security, management training, 

and telecommunications. 

IRS-21 
Transfer to Financial Crimes Enforcement Network (FinCEN)

-$1,000,000 / 0 FTE

The IRS annually reimburses FinCEN for the costs associated with the operations and 

maintenance contract supporting the Bank Secrecy Act (BSA) e-filing system, which is 

administered and controlled by FinCEN. This transfer permanently moves funds from 

IRS to FinCEN to provide the base funding it needs to continue supporting its BSA 

e-filing system. 

Efficiencies/Savings 

-$94,249,000 / -976 FTE 

Efficiency Savings

-$71,356,000 / -769 FTE

The IRS has identified organizational changes designed to increase operating efficiencies 

and reduce costs for FY 2009. 

In the enforcement and operations support programs, savings will be achieved through 

enhancement of technology and support structure improvements such as the Integrated 

Collections Systems (ICS) Windows, Integrated Data Retrieval System (IDRS) Decision 

Assisting program, and Compliance Data Environment (CDE). These enhancements will 

improve system performance and workload distribution, increase the ability to interface 

with other modernized systems, and reduce cycle time while improving customer service. 

Additional productivity will be gained by continued efforts to streamline and centralize 

work processes, enhance workload selection techniques, and improve case selection 

tools. In the Operations Support programs, the IRS will realize savings by implementing 

re-engineered business processing efforts. For example, the IRS expects to gain 

efficiencies and engage stakeholders and business customers in decisions by 

implementing the seat management concept of managing workstations, i.e., the 

coordination of all workstations in an enterprise network by overseeing the installation, 

operation, and maintenance of hardware and software at each workstation. Through 

innovative concepts, evolving techniques, and streamlined efforts, the IRS will ensure 

efficiencies within the operations support programs. The IRS also plans to save by 

deferring lower priority space and housing projects and focusing on higher priority 

projects. 

This budget request proposes to reinvest these savings to Fully Fund Postage Base. 

Increase e-File Savings

-$10,300,000 / -207 FTE

As the result of increased electronic filing, the IRS projects a decrease of paper return 

filings in FY 2009. An estimated 4.2 million fewer paper returns (3.5 million individual 

and 0.7 million business) will be received in FY 2009 due to increases in electronicallyfiled returns. As a result, 207 fewer FTE will be required to perform submissions 

processing activities, generating a savings of $10.3 million. This savings will be 

IRS-22 
reinvested to cover the costs of Increase Efficiency through Submission Processing 

Consolidations and Address Correspondence Inventory. 

The IRS continues to strive to meet the legislatively-established goal of electronically 

receiving 80 percent of all tax and information returns. While technological advances, 

such as modernization of the 1040 e-File system, facilitate the IRS efforts, the 80 percent 

e-File goal was not met in FY 2007. The IRS expects progress toward this goal by 

continuing to enhance taxpayer service efforts, including expanding options for filing, 

payments, and communications, a key component of the strategy to reduce the tax gap. 

The table below shows the actual and projected percent of returns processed 

electronically for FY 2006 through FY 2011 for individual and business returns. 

Performance Level FY 2006 

Actual

FY 2007 

Actual

FY 2008 

Target

FY 2009 

Target

FY 2010 

Target

FY 2011 

Target

Percent of Individual Returns Processed

 Electronically 54.10% 57.10% 61.80% 64.70% 67.00% 69.00%

Percent of Business Returns Processed

 Electronically 16.60% 19.10% 20.80% 22.80% 25.20% 26.60%

Non-Recur Savings

-$12,593,000 / 0 FTE

This reduction reflects non-recurring, one-time costs associated with the IRS FY 2008 

initiatives, such as new hire training, background investigations, and acquisition of 

telecommunications equipment, computers, and printers. 

Reinvestments 

+$32,604,000 / +30 FTE 

Increase Efficiency through Submission Processing Consolidations

+$2,006,000 / 0 FTE

Initiative Summary 

Increased use of e-Filing options has driven continued efforts to consolidate the 

processing of individual returns into fewer sites. Resources from Increased e-File 

Savings will be reinvested to fund one-time severance pay costs for the ramp-down of the 

Andover submissions processing site. As the Andover consolidation approaches, the IRS 

will continue to assist employees in finding employment either in or outside the IRS. 

IRS-23 
Implementation Plan and Benefits 

This reinvestment supports the IRS efforts to implement planned submissions processing 

strategies, including the downsizing of paper operations to meet increases in electronic 

submissions and cost efficient opportunities in processing the paper returns. Return 

processing efficiency and effectiveness will improve as electronic filing increases. The 

ramp-down and consolidation of the Andover submissions processing site will also 

improve compliance by providing taxpayer services more efficiently and effectively, a 

key component of the tax gap strategy. 

Address Correspondence Inventory

+$2,457,000 / +30 FTE

Initiative Summary 

This reinvestment provides $2.5 million and 30 FTE in the IRS Accounts Management 

program. This initiative provides $1.8 million for Customer Service Representatives 

(CSRs) to address increased volumes in correspondence inventory and assist individual 

taxpayers with their questions to reach accounts resolution. As a result, addressing the 

correspondence inventory will improve overall taxpayer compliance. Recently, this 

program has experienced increased volumes, and cases have become more complex. 

This initiative also provides $0.7 million in training funds to provide CSRs with 

additional technical training on the processing of the Form 1040X, Amended U.S. 

Individual Income Tax Return, and to address taxpayer questions. Training funds will 

also be used for managerial training as the Wage & Investment operating division 

continues to decrease its span of control. 

Implementation Plan and Benefits 

Through additional hires and training for CSRs, the IRS will more effectively address the 

needs of taxpayers and process the continuously increasing number of Form 1040X 

returns. This reinvestment supports the IRS efforts to improve compliance by providing 

taxpayer services more efficiently and effectively, a key component of the tax gap 

strategy. 

Fully Fund Postage Base

+$28,141,000 / 0 FTE

Initiative Summary 

This reinvestment will fully fund the IRS postage costs. Increases in both IRS 

enforcement and service-related correspondence activities have resulted in an increase in 

postage costs to contact taxpayers and issue notices via mail. Increased costs are not only 

due to an increase in volume, length, and weight of the mailings, but also due to a larger 

proportion of the mailings being sent via certified mail to ensure taxpayer privacy. 

Similarly, IRS emphasis on providing quality service to American taxpayers necessitates 

effective communication of important information about tax laws and available services, 

IRS-24 
such as e-filing. Fully funding IRS postage costs is critical to supporting enforcement 

efforts to improve compliance and enhancements to taxpayer service programs, two key 

components of the IRS strategy to narrow the tax gap. To fund the postage program, the 

IRS redirected $8.5 million in FY 2006 and reprogrammed $31 million in FY 2007 from 

prior year and user fee balances. 

As illustrated by the table below, the number of notices sent to taxpayers increased from 

146.9 million in FY 2005 to 160.8 million (9.5 percent) in FY 2006 and another 

16.5 million (10 percent) in FY 2007. 

29.6

81.1

119.7

142.2 146.9

160.8

177.3

0

20

40

60

80

100

120

140

160

180

Millions

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

Correspondence Production Services (CPS) Branch

Number of Notices per Fiscal Year

IRS-25 
Total FY 2009 Program Changes +$200,970,000 / -946 FTE 

Program Decreases 

-92,691,000 / -312 FTE 

Taxpayer Assistance Centers and Outreach

- $31,200,000 / -262 FTE

Additional resources were provided in FY 2008 for increasing outreach and education 

activities, for individuals, businesses, and tax-exempt entities; and increasing the number 

of tax returns prepared at the Taxpayer Assistance Centers (TACs). In FY 2009, the IRS 

will continue to work to implement the taxpayer assistance improvements detailed in the 

Taxpayer Assistance Blueprint (TAB). 

Taxpayer Advocate Service

-$7,711,000 / -25 FTE

Additional Taxpayer Advocate Service (TAS) funds were provided in FY 2008 to expand 

TAS case processing activities. In FY 2009, these activities will be restored to levels in 

line with resources for other taxpayer service programs. However, the IRS does requests 

additional TAS program resources where appropriate in support of enforcement staffing 

initiatives (e.g., the FY 2009 Reduce the Tax Gap for Small Business/Self Employed

initiative). 

VITA Grants Program

-$8,000,000 / 0 FTE

Funds provided in FY 2008 included $8,000,000 for a new Volunteer Income Tax 

Assistance (VITA) matching grant demonstration program for tax return preparation 

assistance. This funding is available until September 30, 2009. Given the ramp-up time 

to establish the grant application and approval process, these grants are expected to be 

issued for the 2009 filing season. 

Business Systems Modernization

-$45,780,000 / -25 FTE

The FY 2009 proposed level of $222,664,000 will allow continued progress on key 

modernization projects including the Customer Account Data Engine (CADE), Accounts 

Management Services (AMS), and Modernized e-File (MeF). 

IRS-26 
Program Increases 

+360,846,000 / +3,057 FTE 

Reduce the Tax Gap for Small Business / Self-Employed

+$168,498,000 / +1,608 FTE

Initiative Summary 

This initiative provides for an increase of $168.5 million and 1,608 FTE to address and 

improve compliance among Small Business and Self-Employed (SB/SE) and Wage & 

Investments taxpayers in the tax gap elements of reporting, filing, and payment 

compliance. Over $980.8 million in additional annual enforcement revenue will be 

produced once new hires reach full potential in FY 2011 by increasing examinations of 

business and high-income returns, increasing audits involving flow-through entities, 

implementing voluntary tip agreements, increasing document matching audits, and 

collecting unpaid taxes from filed and unfiled tax returns. 

This initiative will increase staff resources by 687 to address Underreporting Compliance, 

721 to address Nonfiling and Underpayment Compliance, 33 to address Fraud/BSA and 

167 for other direct support. 

Implementation Plan and Expected Benefits by Program 

Underreporting Compliance (+$74.6 million/ +687 FTE)

The Underreporting Compliance tax gap, estimated at $285 billion, reflects the 

underreporting of income and the overstating 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. Underreporting of 

individual income tax and employment tax constitutes over 70 percent of the gross tax 

gap. Individual income tax underreporting totals $197 billion, of which over half, or 

$109 billion, is attributed to understated net business income. Another 28 percent, or 

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

dividends, and capital gains. Employment tax accounts for another $54 billion of the 

underreporting tax gap, of which 72 percent or $39 billion represents self-employment 

tax. 

In FY 2009, this investment will increase staff resources by 530 Revenue Agents (RAs), 

74 Tax Compliance Officers (TCOs), 53 Specialty Field Examination RAs, 

and 30 Correspondence Examination Customer Service Representatives. 

Field Examination 

The RAs will continue to focus on Abusive Tax Avoidance Transactions (ATAT), 

structured transactions, and corporate and high-income examinations involving flowthrough entities (e.g., trusts, partnerships, S corporations). The Employment Tax (ET) 

IRS-27 
RAs will be dedicated to securing and implementing voluntary agreements within the 

gaming industry tip compliance program to increase the accuracy of tip reporting for both 

the employer and employee. 

The RAs and TCOs will examine an additional 5,100 individual income tax returns 

(IMF closures) and 1,000 business income tax returns (BMF closures). Once new hires 

reach full potential in FY 2011, this investment is projected to produce an additional 

19,000 individual return audits and 3,000 business return audits, potentially generating 

$377.6 million in increased revenue. 

Despite 5 percent growth in individual return filings from FY 2008 through FY 2011, the 

IRS estimates that with the addition of Field Examination resources, the IRS will be able 

to maintain the current audit coverage rate for individual returns of approximately 

1 percent. 

EXAMINATION IMF CLOSURES

(In Thousands)

280

290

300

310

320

330

340

350

360

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

EXAMINATION BMF CLOSURES

(In Thousands)

40

42

44

46

48

50

52

54

56

58

60

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

IRS-28 
Specialty Tax Program

The Specialty Tax Program addresses the tax gap by handling cases in the employment, 

excise, and estate and gift tax program areas. In the employment tax area, the IRS 

continues to target efforts toward egregious non-compliance, such as the lower 

compliance levels of tipped employees compared to straight-wage earners. In the excise 

tax area, the IRS is focusing on claims for long-distance telephone tax as well as 

compliance with fuel tax. In the estate and gift tax area, the IRS is focusing on areas of 

non-compliance involving timing and valuation. 

Specialty Tax staff (53 FTE) will conduct approximately 2,300 more tax audits in 

FY 2009, with an emphasis on employment tax cases. Once new hires reach full 

potential in FY 2011, this investment will result in an additional 4,000 tax audits with 

potential revenue of $12.1 million. 

NON-INCOME TAX SPECIALTY CLOSURES

(In Thousands)

64

66

68

70

72

74

76

78

80

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

Correspondence Examination 

The Correspondence Examination program addresses the tax gap through increased 

enforcement presence and coverage. The additional 30 FTE will allow the 

Correspondence Examination program to examine approximately 4,700 more cases in 

FY 2009. Once new hires reach full potential in FY 2011, the additional FTE will 

complete approximately 6,000 more audits with a projected revenue increase of 

$44.4 million. 

IRS-29 
CORRESPONDENCE EXAMINATION CLOSURES

(In Thousands)

325

330

335

340

345

350

355

360

365

370

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

Nonfiling and Underpayment Compliance (+$69.4 million / +721 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 SB/SE nonfiler 

population. In 2002, SB/SE individual nonfilers accounted for 66 percent of the 

individual high-income nonfiler population, representing a 20 percent increase since 

FY 2000. Revenue Officers and Campus Compliance employees use an array of 

techniques to address nonfiling, including the determination of compliance assessments 

based upon available internal and third-party information. 

Nonfiler 

This initiative requests funding to increase the collection efforts on key compliance 

assessments focused on improving voluntary compliance and decreasing nonfiling. 

Additional Field Collection staff (96 FTE) will resolve approximately 1,900 additional 

nonfiler Tax Delinquency Investigations (TDI) in FY 2009, and once new hires reach full 

potential in FY 2011 an additional 3,000 nonfiler investigations. Additional Campus 

Collection/Automated Collection System (ACS) staff (19 FTE) will resolve 

approximately 12,000 additional nonfiler TDI in FY 2009, and once new hires reach full 

potential in FY 2011, an additional 16,000 nonfiler investigations. 

IRS-30 
FIELD TDI CLOSURES

(In Thousands)

260

265

270

275

280

285

290

295

300

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

ACS TDI CLOSURES

(In Thousands)

470

480

490

500

510

520

530

540

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

Underpayment 

Payment Compliance represents 10 percent, or $33 billion, of the tax gap. Additional 

staffing will increase coverage of potentially collectible inventory (PCI) and focus on 

addressing the PCI growth. PCI is the amount of the total unpaid assessments that is 

available for active collection actions. Total PCI increased from $81 billion in 2004 to 

$105 billion in 2007. In 2004, compliance assessments accounted for $14 billion of PCI, 

increasing to $23 billion in 2005, $27 billion in 2006, and $36 billion in 2007. 

Additional Field Collection staff of 486 FTE will resolve approximately 

42,000 additional Tax Delinquency Accounts (TDA) in FY 2009. Once new hires reach 

full potential in FY 2011, the additional staff will resolve an additional 88,000 delinquent 

tax accounts, generating approximately $333.6 million in revenue. 

IRS-31 
FIELD TDA CLOSURES

(In Thousands)

1,150

1,175

1,200

1,225

1,250

1,275

1,300

1,325

1,350

1,375

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

Additional Campus Collection/ACS staff of 120 FTE (92 TDA/28 TDI) will resolve 

approximately 43,000 additional TDA in FY 2009. Once new hires reach full potential in 

FY 2011, the new ACS staff will resolve approximately 67,000 additional delinquent tax 

accounts, with a potential generation of $213.1 million collected. 

ACS TDA CLOSURES

(In Thousands)

1,800

1,820

1,840

1,860

1,880

1,900

1,920

1,940

1,960

1,980

2,000

2,020

2,040

2,060

2,080

2,100

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

IRS-32 
Fraud/BSA (+$3.4 million / +33 FTE) 

The 33 RA FTE will be dedicated to the BSA program and will close an additional 229 

Title 31 cases, and in FY 2011, an additional 400 such cases. In FY 2009, 129 additional 

Form 8300 cases will be examined, and once new hires reach full potential in FY 2011, 

200 additional cases will be examined. 

Title 31 Cases Closed

7000

7200

7400

7600

7800

8000

8200

8400

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

Section 8300 Cases Closed

2300

2400

2500

2600

2700

2800

2900

3000

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

CLOSURES

PRE INITIATIVE CLOSURES POST INITIATIVE CLOSURES

IRS-33 
Follow-On Support (+$21.1 million / +167 FTE) 

The IRS Appeals division ($9.3 million and 67 FTE) will process additional cases 

generated from increased examination and collection program staffing. 

The IRS Office of Chief Counsel ($8.5 million and 62 FTE) will provide legal advice and 

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

shelter litigation and published guidance; as well as and conduct tax reform-related work 

pertaining to SB/SE cases. A legislative change in FY 2006 transferring Collection Due 

Process (CDP) cases involving employment taxes from the United States District Courts 

to the United States Tax Court will have a direct impact on the number of increased CDP 

cases litigated by SB/SE Counsel Attorneys. 

Funding for the Taxpayer Advocate Service ($3.3 million and 38 FTE) will be applied to 

both examination and collection programs to ensure the IRS follows appropriate 

procedures and does not create unnecessary burdens or compromise taxpayer rights. 

Expected Benefits 

This request will produce $980.8 million in additional annual enforcement revenue once 

new hires reach full potential in FY 2011. 

ROI

$169 $137 $137

$422

$778

$981

$0

$300

$600

$900

$1,200

FY09 FY10 FY11

in millio

n

s

Cost Enforcement Revenue

2.5 to 1

5.7 to 1

7.2 to 1

IRS-34 
Reduce the Tax Gap for Large Business

+$69,488,000 / +519 FTE

Initiative Summary 

This initiative requests an increase of $69.5 million and 519 FTE to address the tax gap 

derived primarily from the underreporting of income tax by large, usually multi-national 

businesses; foreign residents; and smaller corporations with significant international 

activity. To narrow this gap, the IRS will continue to improve identification of risk, 

implement more effective approaches to address non-compliance, and allocate resources 

to the highest risk areas. This initiative funds additional RAs with international, financial 

products, and valuation expertise; operational support to enable the IRS to further use 

existing systems to capture other electronic data through scanning and imaging; and 

increases for Counsel attorney and Appeals support. 

In addition to traditional audits, the IRS will expand the use of pre-filing methods, such 

as the Compliance Assurance Process (CAP), which benefit from the post-SarbanesOxley environment of transparency in financial disclosures including required disclosures 

of uncertain tax positions. 

Funding of this initiative will allow the IRS to: 

• Increase and maintain appropriate examination coverage of corporations among 

various stratifications based on compliance risk. For example, in Calendar Year 

(CY) 2005, corporations with assets of more than $250 million reported $172 billion 

in tax and have the largest book-to-tax differences. Efforts to identify risk and deal 

with them effectively through a balance of service and enforcement would be a 

priority. 

• Allocate additional resources to complex enterprises with significant compliance 

risks, often including flow-through entities or offshore special purpose entities. 

(Flow-through entities are the fastest growing population in the Large and Mid-Size 

Business (LMSB) return population, comprising over 64 percent of filings.) 

• Increase and maintain examination coverage of smaller corporate returns and 

individuals with international activity. 

• Leverage technology through the increased development and deployment of 

workforce tools, issue management systems and management information systems to 

increase organizations capabilities to address compliance risk. 

• Provide operational support to enable IRS to further use existing systems to capture 

other electronic data through scanning and imaging. This will provide early and 

efficient delivery of modernized e-file and residual paper return data to field 

compliance employees for identification and resolution of compliance issues. 

IRS-35 
• Strengthen the technical expertise and specialization of the LMSB workforce, aligned 

with complex issues of compliance risk. 

• Provide for on-going renewal of the LMSB workforce to avoid future skill and 

experience gaps.

Implementation Plan and Benefits 

Increase Coverage of Large and Mid-Size Corporations 

This initiative funds an additional 333 FTE comprised of RAs and specialized personnel 

such as international and financial products specialists, engineers, and economists to 

primarily support increased coverage of large and mid-size corporations, including 

returns with significant international activity as well as a small increase in individual 

returns of foreign residents. These additional RAs and specialized personnel will 

improve examination coverage of large businesses, with specific focus on key areas of 

non-compliance involving not only the largest taxpayers, but the most complex financial 

transactions and difficult issues of accounting and tax law. An additional 32 FTE will be

designated for tax technicians to conduct examinations of individual foreign resident 

returns, and 3 FTE will be designated for international technical training to meet the 

demand for increased technical skills of employees dealing with international tax issues

and non-compliance. 

The resources provided by this initiative will increase the ability of the IRS to ensure that 

the complicated transactions arising from the factors identified in the next paragraph are 

properly reported for tax purposes. This initiative will fund the hiring of a workforce 

needed to implement new data-driven processes using an issue-focused approach to 

compliance through specialization of resources. 

IRS historical enforcement results show that non-compliance by large corporations 

represents a significant portion of the $345 billion gross tax gap. As filings continue to

increase, the IRS assumes the tax gap associated with these filings also increases. While 

it is difficult to identify the exact source for the large corporate tax gap, a large portion 

may be attributed to: 

• Unreconciled or undisclosed book-to-tax differences between financial 

reporting and income tax reporting. Corporate taxpayers are encouraged to 

show high profitability for financial reporting purposes and low profitability 

for tax reporting purposes. In FY 2003, book-to-tax differences increased by 

at least $266 billion compared to FY 2000 through FY 2002. As book-to-tax 

differences continue to increase, it is likely that underreporting attributable to 

these differences will also increase. The lack of adequate information 

regarding relevant business transactions and book-to-tax reconciliations 

increases the risk of undetected non-compliance with tax laws. 

• Increased opportunities to engage in improper tax planning due to rapid global 

business expansion across differing tax jurisdictions, including tax haven 

countries. Between December 31, 2004 and June 30, 2005, 31,298 taxpayers 

IRS-36 
filed Schedule M-3 for corporate tax returns. Aggregated data estimates that 

$227 billion of net income from controlled foreign corporation was excluded 

from tax return filings, and $89 billion of net income from non-includible U.S. 

entities was excluded from U.S. tax returns. 

• Use of abusive tax avoidance transactions and illegal shelters. 

• Increased risks from the evolution of complex business structures as 

businesses respond to pressure for increased shareholder return. These 

structures include offshore and multilateral arrangements reflected in special 

purpose entities, joint ventures, and other specialized arrangements, which 

often include tiered flow-through entities. For the largest corporations for 

which a “team approach” is used for examinations, 69 percent were involved 

in tiered partnerships directly or through subsidiaries. 

• Increased complexity within the tax code. 

IRS compliance efforts are facilitated by the implementation of mandatory electronic 

filing for large businesses and implementation of the Schedule M-3, which provides 

information on potentially non-compliant transactions that have differing treatment for 

book and tax purposes. The improved data from electronic filings allows the IRS to 

quickly assess risks in these returns and deliver the returns to the field for compliance 

action where warranted. The data from Schedule M-3 provides direction for the IRS to 

address critical compliance issues early and provides a more level playing field for 

determining which returns require audit or other compliance action. The improved 

information will enhance the IRS ability to determine where resources should be applied 

and better assess the necessary scope and depth of the audits or other compliance action. 

Faced with growing business risks, the IRS has implemented and improved processes to 

maintain audit coverage in the large corporate sector - those corporations with 

$10 million or greater in assets. The currency and cycle time initiative improves the 

timeliness of examinations. The IRS also implemented new, non-traditional approaches 

to compliance. These approaches include pre-filing and real-time compliance solutions 

in contrast to post-filing solutions, which do not occur until years after the actual 

transactions. Specific examples of these new approaches include the CAP, use of issue 

management teams, pre-filing agreements, currency and cycle time initiatives, and issue

specialization among the IRS workforce. At the international level, the IRS supports the 

Joint International Tax Shelter Information Centre (JITSIC) and exchanges of 

information with treaty partners. 

Return filings for the volatile large business taxpayer population continue to increase. 

Projected filings for CY 2008 are 205,800, a 36 percent increase over the CY 2002 total 

of 151,353. As indicated by the chart below, filings are projected to grow an additional 

3 percent to 212,700 in CY 2009. 

IRS-37 
Filings by type of

return by assets

CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009

Corporations

$10M <$250M 48,694 47,786 43,064 44,744 44,773 43,700 43,000 42,400

Corporations >$250M 10,908 11,188 11,027 12,133 12,584 12,500 12,500 12,500

Sub Chapter S >$10M 25,271 26,954 30,017 32,753 36,325 38,000 40,100 42,300

Partnerships 66,480 71,000 81,000 86,322 99,482 104,800 110,200 115,500

Total 151,353 156,928 165,108 175,952 193,164 199,000 205,800 212,700

Technological and Process Improvements 

This initiative includes an additional 77 FTE for support of certain critical compliance 

information systems. The additional FTE will enable IRS to further use existing systems 

to capture other electronic data through scanning and imaging. These data come from

residual paper returns, which include international information returns, paper-filed 

Schedule M-3s, and certain flow-through filings, as well as returns not mandated to be

filed electronically. These data will facilitate the better and quicker identification of

abusive transactions and issues from book-tax differences that are a major contributor to 

the tax gap. 

The 77 FTE requested to support each system under this initiative are: 

 

• 30 FTE for Data Capture, 

• 7 FTE for LMSB Imaging Network (LIN), 

• 15 FTE for Promoter Imaging Network (PIN), and 

• 25 FTE for Chapter 3 Withholding (CTW). 

Other Direct Costs 

The IRS Office of Chief Counsel ($6.8 million and 54 FTE) will provide support to this 

initiative and increased case closures. Counsel attorneys will advise RAs on complicated 

issues of tax law and accounting principles in the context of large corporate and flowthrough enterprises. The attorneys will assist in all phases, including: developing facts 

by assisting in gathering documents; issuing summonses and conducting interviews; 

identifying issues; developing legal positions; assessing the merits of taxpayer positions; 

developing responses to taxpayer submissions; accompanying agents to taxpayer 

meetings; commenting on taxpayer protests; drafting closing agreements; reviewing 

statutory notices; attending pre-conferences with Appeals; and litigation, as necessary. 

The IRS Appeals division ($2.6 million and 20 FTE) will provide support to this 

initiative by increasing coverage through non-traditional approaches, leveraging 

technology to enhance the quality and timeliness of risk identification, and employing a 

strategic approach to issue management. 

IRS-38 
Expected Benefits 

With technological and process improvements and new approaches to compliance, the 

IRS is positioned to quickly identify the issues most warranting compliance action and to 

apply compliance treatments that are appropriate for the type of risk and taxpayer 

behavior. IRS performance reflects the improvement in processes derived from an issuedriven approach to compliance motivated by improved data delivery tools. 

Return on Investment (ROI) 

The ROI for this initiative will generate $543.9 million in additional annual enforcement 

revenue once the new hires reach full potential in FY 2011 (see chart below.) 

ROI

$70 $61 $61

$121

$254

$544

$-

$100

$200

$300

$400

$500

$600

FY 09 FY 10 FY 11

in millio

n

s

Cost Enforcement Revenue

1.7 to 1

4.1 to 1

8.9 to 1

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance

+$51,058,000 / +393 FTE

Initiative Summary 

This initiative provides $51.1 million and 393 FTE to support and expand ongoing 

research studies of filing, payment, and reporting compliance to provide a comprehensive 

picture of the overall taxpayer compliance level. Research enables the IRS to develop

strategies to combat specific areas of non-compliance, improve voluntary compliance, 

and allocate resources more effectively to reduce the tax gap. The goal of the measures is 

to provide benchmarks against which the IRS can evaluate the effectiveness of programs 

designed to improve compliance with the tax code and reduce the tax gap. 

IRS-39 
Implementation Plan and Benefits 

This initiative supports ongoing Reporting Compliance Studies through the National 

Research Program (NRP). The request funds research studies of reporting compliance 

for new segments of taxpayers, such as corporations, partnerships, and other business 

entities, and updates existing estimates of reporting compliance (e.g., individual 

taxpayers). The initiative will also enhance an existing base of operating division 

examiners with varying expertise to perform reporting compliance studies to limit the 

diversion of resources from operational priorities. Accordingly, this initiative requests

FTE in the following divisions; 68 in LMSB, 208 in SB/SE, 87 in 

Tax-Exempt/Government Entities (TEGE) and an additional 30 in support divisions. 

Expected Benefits 

Improved quality of research data will allow the IRS to spend a smaller proportion of its 

resources auditing taxpayers who are already compliant with the law. This initiative 

improves the fairness of the tax system and voluntary taxpayer compliance, reduces the 

burden on compliant taxpayers, and increases revenue to reduce the tax gap. The audits 

associated with these studies will generate $16 million in additional annual enforcement 

revenue once new hires reach full potential in FY 2011. 

The initiative focuses on three measures (filing, payment, and reporting compliance) to 

provide a comprehensive picture of the overall level of compliance. The measures will 

provide benchmarks against which the IRS can evaluate the effectiveness of programs 

designed to improve taxpayer compliance with the tax code. 

The data captured during the studies will enable the IRS to develop strategies to combat 

specific areas of non-compliance, improve voluntary compliance, allocate resources more 

effectively, respond to new sources of non-compliance as they emerge, and reduce the tax 

gap. The IRS needs estimates of non-compliance for all of the major taxes and groups of 

taxpayers in order to effectively deploy resources. 

Moreover, since patterns of non-compliance in the population change over time, the IRS 

requires updated estimates of taxpayer compliance. With up-to-date studies, the IRS will 

be able to respond rapidly to trends and emerging vulnerabilities in the tax system. The 

initiative also benefits compliant taxpayers by using reporting compliance studies to 

improve workload selection formulas. 

Return on Investment (ROI) 

The ROI for this initiative will generate $15.9 million in additional annual enforcement 

revenue once the new hires reach full potential in FY 2011 (see chart below). 

IRS-40 
ROI

$51

$42 $42

$15 $16 $16

$0

$100

FY09 FY10 FY11

in millio

n

s

Cost Enforcement Revenue

0.3 to 1 0.4 to 1 0.4 to 1

Increase Reporting Compliance of U.S. Taxpayers with Offshore Activity

+$13,697,000 / +124 FTE

Initiative Summary 

This initiative provides for an increase of $13.7 million and 124 FTE to address domestic 

taxpayer offshore activities. Abusive tax schemes, reporting of flow-through income, and 

high-income individuals are prime channels or candidates of opportunity for tax 

avoidance. Abusive offshore tax schemes involve the use of foreign jurisdictions that 

enacted financial secrecy laws in an effort to attract investments from outside their 

borders. Domestic promotions lure taxpayers with the promise of illegitimate tax 

benefits that do not conform to current law and are marketed as devices that reduce, 

eliminate, or help evade income, self-employment, employment, estate, gift, and/or 

excise taxes.

One of the most difficult tasks the IRS encounters in addressing offshore compliance is 

identifying individual taxpayers who are involved in offshore arrangements. Offshore 

arrangements may be designed to conceal the identity of the taxpayers and to shield their 

ownership of assets and income from detection. The process used by IRS to identify 

taxpayers involved in offshore arrangements is known as “following the money”. Below 

are four basic components to an offshore abusive arrangement: 

• Devise an overall offshore plan (the Promoter/Promotion); 

• Covertly transfer funds and assets offshore (Expatriation); 

• Control the funds and assets transferred offshore (Control/Ownership); and 

• Access the offshore funds (Repatriation). 

IRS-41 
Implementation Plan 

Financial privacy laws in certain foreign jurisdictions pose a significant hurdle in IRS 

efforts to battle offshore abusive tax shelters. These jurisdictions deliberately attract 

foreign business with government policies including enacting incentives that minimize or 

mitigate tax, “business friendly” regulatory/supervisory regimes such as exchange 

controls, disclosure requirements, and secrecy enforced by law. 

The legal framework of these jurisdictions makes them unique. In addition, these 

jurisdictions enable banks, trust companies, company incorporators, other financial 

intermediaries, and financial advisors resident in that jurisdiction to provide products and 

services to non-residents in their home countries. The IRS is particularly concerned 

about offshore secrecy jurisdictions that: 

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

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

• Lack transparency in that they offer banking and financial secrecy by law and 

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

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

• Do not exchange tax information with the United States. 

A few offshore secrecy jurisdictions have Tax Information Exchange Agreements 

(TIEAs) 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 United States is able to secure information about a 

taxpayer, the TIEAs 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 five 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. 

Other Direct Costs 

Of the 124 FTE, this initiative has 10 FTE for support cost. The IRS Appeals division 

($0.5 million and 4 FTE) will process the additional anticipated exam cases that will be 

referred and accommodate the increased time that will be required to resolve these cases. 

The IRS Office of Chief Counsel ($0.8 million and 6 FTE) will provide legal advice and 

assistance in the area of investigating taxpayers with financial dealings in offshore 

secrecy jurisdictions. 

IRS-42 
Expected Benefits 

The additional FTE will generate in the first year an estimated 3,200 additional 

examinations of taxpayers who use offshore activities to hide, conceal, defer, or obscure 

assets and taxable income. 

Domestic Taxpayers with Offshore Activity Exam

Closures

0

1,000

2,000

3,000

4,000

5,000

6,000

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

Year

Closures

PRE INITIATIVE POST INITIATIVE

Return on Investment (ROI) 

This request will generate approximately $39 million in additional resources in the first 

year and $101.9 million in additional annual enforcement revenue once the new hires

reach full potential in FY 2011 (see chart below).

ROI

$14 $11 $11

$39

$84

$102

$0

$30

$60

$90

$120

FY09 FY10 FY11

in millions

Cost Enforcement Revenue

9.0 to 1 

7.4 to 1 

2.9 to 1 

IRS-43 
Expand Document Matching

+$35,060,000 / +413 FTE

Initiative Summary 

This initiative requests $35.1 million to increase the coverage of the IRS Automated 

Underreporter (AUR) program in order to reduce the number of non-compliant taxpayers 

who misreport their income. Increased document matching of small business/selfemployed and individual taxpayer account information identifies taxpayers who 

underreport their income and minimizes revenue loss. This initiative will generate 

$359 million in additional annual enforcement revenue once the new hires reach full 

potential in FY 2011. 

Implementation Plan 

The objective of the AUR program is to minimize revenue loss through document 

matching of taxpayer account information. The IRS commitment to maintaining a robust 

AUR program is demonstrated by a commitment to increasing enforcement results and is 

reflected in targets for the long-term goals and corresponding performance targets. 

About 6.9 million small business taxpayers may currently misreport their income based 

on third party information returns. Of those, the small business AUR program processes 

approximately 2.2 million taxpayer cases, leaving an unaddressed gap of 4.7 million 

taxpayers. 

The number of individual taxpayers who may annually misreport their income is about 

5.1 million based on third party information returns. The AUR program currently 

processes about 2.3 million taxpayer cases, leaving an unaddressed gap of 2.8 million 

taxpayers. 

The additional resources will increase the number of SB/SE AUR closures from 

1.7 million in FY 2009 to 1.8 million in FY 2011 and individual AUR closures from

2.1 million in FY 2009 to 2.4 million in FY 2011. 

Other Direct Costs 

The IRS Appeals division ($2.1 million and 14 FTE) will process additional cases that 

will be referred by the AUR document matching program. 

Expected Benefits 

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

programs. By 2011, the return on investment is expected to reach 11.4 to 1. This 

initiative will generate $358.6 million in additional annual enforcement revenue once the 

new hires reach full potential in FY 2011. 

IRS-44 
ROI

$35 $32 $32

$171

$287

$359

$0

$100

$200

$300

$400

FY09 FY10 FY11

in millio

n

s

Cost Enforcement Revenue

4.9 to 1

9.1 to 1

11.4 to 1

This initiative also links IRS compliance resources to clearly defined, measurable, and 

results-oriented annual performance outcomes. It addresses the erosion of the IRS 

enforcement presence and the continued growth in non-compliance expressed by TIGTA, 

GAO, Congress, and the media. The initiative will also help decrease the tax gap, 

increase voluntary compliance, and reduce the number of taxpayers who underreport 

income in future tax years. 

Implement Legislative Proposals to Improve Compliance

+$23,045,000 / 0 FTE

Initiative Summary 

This initiative provides an increase of $23 million to implement several legislative 

proposals that are intended to provide the IRS with additional enforcement tools to 

improve compliance with minimum taxpayer burden. These tools would supplement the 

IRS ongoing efforts to address compliance problems by improving customer service and 

using traditional methods of enforcement. These proposals would expand information 

reporting, improve compliance by businesses, strengthen tax administration, and expand 

penalties. This enforcement initiative includes funding for purchasing software and 

making modifications to the IRS IT systems necessary to implement these legislative 

proposals. 

Implementation Plan 

Although the Budget includes sixteen proposals, additional information is provided 

below only for those proposals that will require funding to implement in FY 2009. 

Information Reporting on Merchant Payment Card Reimbursements: 

Underreported business income among members of the SB/SE community accounts for a 

significant portion of the individual income tax gap. Businesses often receive payments 

for goods or services via a consumer’s payment card, but subsequently fail to report the 

IRS-45 
income from these transactions on the business’ federal income tax return. These 

underreported transactions add up to be significant contributors to the tax gap. 

This proposal will address this portion of the tax gap by providing the IRS with an 

additional means of cross-referencing the income reported by businesses with their 

payment card receipts. Under this proposal, the IRS would require payment card 

processors to report annually total reimbursements paid to businesses for goods and 

services. The reported amount would then be compared to gross receipts reported by 

businesses on their federal returns. A significant difference in the dollar values of the 

reimbursements by payment card companies and the gross receipts reported by 

businesses would be a red flag that income was possibly being underreported. 

The IRS anticipates that this proposal will help reduce the tax gap in three ways. First,

businesses would benefit from having an annual summary of credit card payments, which 

they could compare with their own records (much as individuals benefit from receiving a 

confirmation from their bank as to how much interest they earned during the year). 

Second, businesses that might otherwise be inclined to underreport their income might 

reconsider, knowing the IRS has a means to validate the gross income reported on their 

federal tax returns. Third, businesses that continue to abrogate their responsibilities as

taxpayers (e.g., by not filing returns, or understating their income) would be more easily 

identified, so that appropriate enforcement action could be taken. 

The IRS anticipates receiving approximately 125 million information return documents 

from credit and debit card processors per year, associated with approximately five million 

SB/SE taxpayers. Revenue Agents in the field could then follow up with delinquent 

taxpayers in the course of standard enforcement operations. 

Information Reporting on Certain Government Payments: 

One of the most high-profile components of the tax gap relates to the failure of some 

government vendors and contractors to meet their tax filing and payment obligations. 

Under present law, the federal government has broad authority to levy federal payments 

made to vendors of goods and services. The proposal would authorize the 

implementation of regulations requiring information reporting and backup withholding 

on all non-wage payments by federal, state, and local governments to procure property 

and services. 

As part of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), enacted 

on May 17, 2006, Congress enacted a provision requiring 3 percent withholding on 

certain government vendor payments. This provision is broader than the 

Administration’s proposal in that it requires information reporting and immediate 

withholding on government payments, rather than information reporting and backup 

withholding. The TIPRA provision applies only to payments made after 

December 31, 2010, whereas the Administration’s proposal would be effective for 

payments made on or after January 1, 2009. 

The IRS anticipates receiving an additional 89 to 177 million information returns as a 

result of the new reporting requirements. The costs associated with implementation of 

this program are for reprogramming affected information technology systems. Once 

IRS-46 
these initial costs have been incurred, subsequent costs will decrease as processing, 

transcription, and matching activities will occur largely within existing workgroups. 

Information Reporting on Payments to Corporations: 

The National Research Program and earlier compliance studies have consistently shown 

that misreporting of individual income and offsets to income is significantly reduced

where there is substantial third-party information reporting. This is likely to be true for 

corporations, as well. Under current law, businesses are not required to issue Forms 1099 

for services provided by corporations. 

Implementation of this proposal will increase the number of Forms 1099 filed. Voluntary 

compliance is expected to increase for corporate reporting of amounts subject to this 

information reporting. The IRS would require additional resources to implement 

matching programs to address the increased volume of Forms 1099. 

Basis Reporting on Security Sales: 

GAO estimates that 36 percent of individual taxpayers misreported their securities capital 

gains or losses in 2001. The estimated capital gains tax gap for Tax Year 2001 is $11 

billion dollars. This amount will be significantly reduced by requiring financial 

institutions to: 

• report the adjusted cost basis of securities sold and the nature of the sale (short-term

or long-term) to the IRS, and 

• exchange information to enable other financial institutions to meet adjusted cost basis 

reporting requirements for clients who transfer securities to a successor financial 

institution. 

In those instances where a broker does not have sufficient information to compute the 

adjusted cost basis, the taxpayer will be responsible for reporting the sale. 

Increase Information Return Penalties: 

The IRS currently asserts a penalty for failure to file a correct information return. The

current penalty amount of $50 (or $100 for intentional disregard), with a calendar year 

cap of $250,000 for each filer, provides little incentive to increase compliance. This 

proposal will enhance compliance in this area by increasing the penalty amount and the 

cap to increase the cost of doing business for perpetual offenders. The penalty will be 

increased to $100 (or $250 for intentional disregard) for each unfiled return. The cap will 

be increased to $1,500,000 unless the failure is due to intentional disregard of a filing

requirement, in which case there will continue to be no calendar year limit. For certain 

small filers whose average annual gross receipts do not exceed $5,000,000, the cap will 

be increased from $100,000 to $500,000. 

During the 2005 Tax Year, 53,821 payers received a Proposed Penalty Notice for failure 

to timely and accurately provide Forms 1099. While penalties are not considered a 

revenue source since they are inversely related to compliance, placing a monetary price 

on non-compliance is expected to result in significant revenue, enhanced voluntary 

compliance and a diminishing penalty rate over time. 

IRS-47 
Expand IRS Access to Information in the NDNH Database:

The Department of Health and Human Services maintains the National Directory of New 

Hires (NDNH), which contains newly hired employee data, quarterly wage data from

state and federal employment security agencies, and unemployment benefit data. 

Currently, the IRS may obtain NDNH data only for administering the Earned Income Tax 

Credit and for verifying employment reported on a return. 

Employment data, used by the IRS to administer a wide range of tax provisions, is 

currently obtained on a state-by-state basis, which is both time-consuming and costly. 

This legislative proposal would amend the Social Security Act to allow the IRS access to 

the NDNH for general tax administration, including data matching, verification of 

taxpayer claims, preparation of substitute returns for noncompliant taxpayers, and 

identification of levy sources. Expanded IRS access to NDNH data will increase 

productivity and enhance compliance. 

Expected Benefits 

This initiative supports the tax gap strategy outlined in the IRS report, Reducing the

Federal Tax Gap: A Report on Improving Voluntary Compliance, that was published 

August 2007. Implementation of these legislative proposals will improve compliance 

without imposing undue burdens on honest taxpayers and supports the first component of 

this strategy: Reduce Opportunities for Evasion. Collectively, the Department of the 

Treasury estimates that these 16 legislative proposals will generate about $36 billion over 

the next ten years. 

IRS-48 
2.2 – Operating Levels Table 

Dollars in Thousands 

Appropriation Title: Internal Revenue Service FY 2007 

Enacted 

FY 2008

President's

Budget

Cong. 

Action

including

Rescission

FY 2008 

Enacted 

Level 

FY 2009 

Requested

Level

FTE 93,088 93,486 (2,363) 91,123 92,923

Object Classification:

11.1 Full-Time Permanent Positions............................ $5,304,177 $5,614,374 $5,485,417 $5,711,664

11.3 Other than Full-Time Permanent Positions........

($128,957)

. 417,819 428,545 428,501 433,088

11.5 Other Personnel Compensation.........................

(44)

. 248,846 327,366 260,553 272,744

11.8 Special Personal Services Payments................. 17,494 17,499 17,268 17,726

11.9 Personnel Compensation (Total)................... $5,988,336 $6,387,784 $6,191,739 $6,435,222

12.0 Personnel Benefits................................................ 1,612,921 1,581,334 1,538,774 1,624,404

13.0 Benefits to Former Personnel.............................. 56,090 55,096 1,695 56,791 53,839

21.0 Travel.....................................................................

(66,813)

(231)

($196,045)

(42,560)

. 203,612 209,176 1,412 210,588 250,003

22.0 Transportation of Things....................................... 86,873 30,060 3,473 33,533 34,702

23.1 Rental Payments to GSA...................................... 629,076 649,631 628,957 653,829

23.2 Rent Payments to Others.....................................

(20,674)

. 4,371 388 112 500 510

23.3 Communications, Utilities, & Misc........................ 359,054 373,331 372,788 414,628

24.0 Printing and Reproduction...................................

(543)

. 70,745 67,279 1,024 68,303 69,333

25.1 Advisory & Assistance Services........................... 91,069 69,895 77,077 146,972 150,077

25.2 Other Services....................................................... 696,411 771,946 726,179 720,388

25.3 Purchase of Goods/Serv. from Govt. Accts......

(45,767)

... 163,583 98,909 2,554 101,463 104,981

25.4 Operation & Maintenance of Facilities................. 159,992 170,953 168,829 181,503

25.5 Research & Development Contracts..................

(2,124)

. 5,863 8,177 7,478 7,620

25.6 Medical Care......................................................... 10,025 10,245 0 10,245 10,764

25.7 Operation & Maintenance of Equipment............

(699)

. 70,993 82,712 77,338 79,745

25.8 Subsistence & Support of Persons.....................

(5,374)

. 4,486 5,022 1,837 6,859 6,910

26.0 Supplies and Materials......................................... 55,414 62,658 7,920 70,578 73,384

31.0 Equipment.............................................................. 251,195 388,237 7,005 395,242 423,039

32.0 Lands and Structures........................................... 54,259 55,132 51,826 48,139

33.0 Investments & Loans............................................

(3,306)

. 0 0 0 0 0

41.0 Grants, Subsidies.................................................. 12,108 12,569 9,000 21,569 12,502

42.0 Insurance Claims & Indemn................................. 5,294 1,033 12 1,045 1,114

43.0 Interest and Dividends................................. 0 0 0 0 0

44.0 Refunds.................................................................. 0 0 0 0 0

91.0 Unvouchered.............................................. 5,295 3,932 856 4,788 4,873

Total Budget Authority....................................... $10,597,065 $11,095,499 $10,892,384 $11,361,509

Appropriations:

Taxpayer Services............................................. $2,138,238 $2,103,089 $46,911 $2,150,000 $2,150,000

Enforcement ...................................................

($203,115)

... 4,686,477 4,925,498 4,780,000 5,117,267

Operations Support..........................................

(145,498)

... 3,544,835 3,769,587 3,680,059 3,856,172

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

(89,528)

... 212,659 282,090 267,090 222,664

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

(15,000)

... 14,856 15,235 0 15,235 15,406

Total Budget Authority....................................... $10,597,065 $11,095,499 $10,892,384 $11,361,509 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

($203,115)

IRS-49 
2.3 – Appropriation Detail Table 

Dollars in Thousands 

Internal Revenue Service

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Taxpayer Services 31,908 2,133,464 31,557 $2,138,238 31,218 $2,150,000 30,792 $2,150,000 -1.36% 0.00%

Enforcement 47,842 4,652,556 48,307 4,686,477 47,349 4,780,000 49,792 5,117,267 5.16% 7.06%

Operations Support 11,904 3,514,581 12,890 3,544,835 12,181 3,680,059 11,989 3,856,172 -1.58% 4.79%

Business Systems Modernization 353 158,758 317 212,659 358 267,090 333 222,664 -6.98% -16.63%

Health Insurance Tax Credit Administration 10 14,850 17 14,856 17 15,235 16 15,406 -5.88% 1.12%

Subtotal New Appropriated Resources 92,017 $10,474,209 93,088 $10,597,065 91,123 $10,892,384 92,922 $11,361,509 1.97% 4.31%

Other Resources:

Recoveries 0 4,082 0 4,082 0 0 0 0 0.00% 0.00%

Offsetting Collections - Reimbursable 698 90,160 598 90,160 623 104,898 650 107,904 4.33% 2.87%

Available multi-year/no-year funds 0 148,686 0 148,686 0 158,893 0 151,110 0.00% -4.90%

50% Carryover 0 43,358 0 43,358 0 0 0 0 0.00% 0.00%

Transfers In/Out 0 4,552 0 4,552 0 0 0 0 0.00% 0.00%

Mandatory Appropriations - User Fees 0 136,789 0 136,789 0 258,372 0 177,655 0.00% -31.24%

Subtotal Other Resources 698 $427,627 598 $427,627 623 $522,163 650 $436,669 4.33% -16.37%

Total Resources Available for Obligation 92,715 $10,901,836 93,686 $11,024,692 91,746 $11,414,547 93,572 $11,798,178 1.99% 3.36%

FY 2008

Resources Available for Obligation

FY 2007 FY 2007 FY 2008 FY 2009

Enacted 1 Obligations Enacted Request to FY 2009

% Change

IRS-50 
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, 

$2,150,000,000, of which [not less than $3,000,000]up 

to $4,100,000 shall be for the Tax Counseling for the 

Elderly Program, of which [not less than 

$9,000,000]$8,000,000 shall be available for lowincome taxpayer clinic grants[, of which not less than 

$8,000,000, to remain available until September 30, 

2009, shall be available to establish and administer a 

Community Volunteer Income Tax Assistance 

matching grants demonstration program for tax return 

preparation assistance, and of which not less than 

$177,000,000 shall be available for operating expenses 

of the Taxpayer Advocate Service]. (Department of 

the Treasury Appropriations Act, 2008.)

ENFORCEMENT: 

(including transfer of funds) 

For necessary expenses 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 of 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, 

[$4,780,000,000]$5,117,267,000, of which not less 

than $57,252,000 shall be for the Interagency Crime 

and Drug Enforcement program: Provided, That up to 

$10,000,000 may be transferred as necessary from this 

account to the Internal Revenue Service, “Operations 

Deleted language for VITA and 

the Taxpayer Advocate Service 

consistent with the IRS 2009 

Budget request. 

IRS-51 
Support” [appropriations] 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. (Department of the Treasury 

Appropriations Act, 2008.)

OPERATIONS SUPPORT:

For necessary expenses of the Internal Revenue 

Service to[operate and] 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; 

[$3,680,059,000]$3,856,172,000, of which up to

$75,000,000 shall remain available until September 

30, [2009]2010, for information technology support; 

of which not to exceed $1,000,000 shall remain 

available until September 30, [2010]2011, for 

research; of which not [less than $2,000,000] to exceed 

$1,600,000 shall be for the Internal Revenue Service 

Oversight Board; and of which not to exceed $25,000 

shall be for official reception and representation. 

(Department of the Treasury Appropriations Act, 

2008.)

BUSINESS SYSTEMS MODERNIZATION: 

For necessary expenses of the Internal Revenue 

Service’s business systems modernization program, 

[$267,090,000]$222,664,000, to remain available until 

September 30, [2010]2011, 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 

Adding the “up to” language 

allows additional flexibility to 

determine late in the year which 

projects may require a second 

year for obligation. 

IRS-52 
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 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, 

2008.)

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), [$15,235,000]$15,406,000. 

(Department of the Treasury Appropriations Act, 

2008.)

 

ADMINISTRATIVE PROVISIONS: 

(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 

Sec. 104 The IRS has sustained 

a level of service of 82 percent 

for the last three years and 

believes this provision is no 

IRS-53 
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. Section 9503(a) of title 5, United States 

Code, is amended by striking “for a period of 10 years 

after the date of enactment of this section” and 

inserting “before July 23, 2013”.] 

[Sec. 106. Sections 9504(a) and (b), and 9505(a) of 

title 5, United States Code, are amended by striking 

“For a period of 10 years after the date of enactment of 

this section” each place it occurs and inserting “Before 

July 23, 2013”.] 

[Sec. 107. Section 9502(a) of title 5, United States 

Code, is amended by striking “Office of Management 

and Budget” and inserting “Office of Personnel 

Management”.] 

[Sec. 108. Of the funds made available by this Act for 

the Internal Revenue Service, not less than $7,350,000 

shall be available for increasing above fiscal year 2007 

levels the number of full-time equivalent positions and 

related support activities performing Automated 

Collection System functions.] 

Sec. 104. Of the funds made available by this Act to 

the Internal Revenue Service, not less than 

$6,997,226,000 shall be available only for tax 

enforcement and related support activities funded in 

Internal Revenue Service, "Enforcement" and 

"Operations Support" accounts. In addition, of the 

funds made available by this Act to the Internal 

Revenue Service, and subject to the same terms and 

conditions, an additional $489,983,000 shall be 

available for enhanced tax enforcement and related 

support activities: Provided, that not to exceed 1

percent of the funds made available by this Act to the 

Internal Revenue Service "Operations Support" 

account, for tax enforcement related support activities, 

may be transferred to taxpayer service related support 

activities upon advance notification of the Committees 

on Appropriations. (Department of the Treasury 

Appropriations Act, 2008.)

 

longer necessary. 

Sec. 105 through Sec. 107 

extended IRS critical pay 

authority through 2013 and are 

not needed in the 2009 

appropriation bill. 

Sec. 108 The funding for the 

Automated Collection System

functions is included in the base 

of the IRS 2009 Budget request. 

As in the past three budget 

requests, the Administration 

proposes to include these 

enforcement increases as a 

Budget Enforcement Act 

program integrity cap 

adjustment. 

The IRS allocates Operations 

Support funding (e.g., rent, 

telecommunications, 

information technology) to the 

Taxpayer Service and 

Enforcement programs based on 

a cost allocation methodology. 

In many cases the IRS must 

move money between support 

activities during budget 

execution (e.g., from facilities 

to postage). This language will 

provide the IRS with flexibility 

to transfer up to one percent of 

IRS-54 
 enforcement related operations 

support funds to taxpayer 

service related support 

activities. This will allow 

greater flexibility in execution 

without reducing front line 

enforcement effort. 

IRS-55 
2C – Legislative Proposals 

The FY 2009 President’s Budget includes a number of legislative proposals intended to 

improve tax compliance with minimum taxpayer burden. These proposals will generate 

about $36 billion over the next ten years. The Administration proposes to expand 

information reporting, improve compliance by businesses, strengthen tax administration, 

and expand penalties. 

• Expand information reporting – Compliance with the tax laws is highest when 

payments are subject to information reporting to the IRS. Specific information 

reporting proposals would: 

1) require information reporting on payments to corporations; 

2) require basis reporting on security sales; 

3) require information reporting on merchant payment card reimbursements; 

4) require a certified Taxpayer Identification Number (TIN) from contractors; 

5) require increased information reporting on certain government payments; 

6) increase information return penalties; and 

7) improve the foreign trust reporting penalty. 

• Improve compliance by businesses – Improving compliance by businesses of all sizes is 

important. Specific proposals to improve compliance by businesses would: 

1) require electronic filing by certain large organizations; and 

2) 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: 

1) expand IRS access to information in the National Directory of New Hires for tax 

administration purposes; 

2) permit disclosure of prison tax scams; 

3) make repeated willful failure to file a tax return a felony; 

4) facilitate tax compliance with local jurisdictions; 

5) extend statutes of limitations where state tax adjustments affect federal tax 

liability; and 

6) improve the investigative disclosure statute. 

IRS-56 
• Expand penalties – Penalties play an important role in discouraging intentional noncompliance. A specific proposal to expand penalties would: 

1) impose a penalty on failure to comply with electronic filing requirements. 

Improve Tax Administration and Other Miscellaneous Proposals 

The Administration has put forward additional proposals relating to IRS administrative 

reforms. Five of these proposals are highlighted below: 

The first proposal modifies employee infractions subject to mandatory termination and 

permits a broader range of available penalties. It strengthens taxpayer privacy while 

reducing employee anxiety resulting from unduly harsh discipline or unfounded 

allegations. 

The second proposal allows the IRS to terminate installment agreements when taxpayers 

fail to make timely tax deposits and file tax returns on current liabilities. 

The third proposal eliminates the requirement that the IRS Chief Counsel provide an 

opinion for any accepted offer-in-compromise of unpaid tax (including interest and 

penalties) equal to or exceeding $50,000. This proposal requires that the Secretary of 

Treasury establish standards to determine when an opinion is appropriate. 

The fourth proposal extends the IRS authority to use the proceeds received from

undercover operations through December 31, 2012. The IRS was authorized to use 

proceeds received from undercover operations to offset necessary and reasonable 

expenses incurred in such operations. The IRS authority to use proceeds from

undercover operations expired on December 31, 2007. 

The fifth proposal equalizes penalty standards between tax return preparers and 

taxpayers, reducing unnecessary conflicts of interest between them. The standard 

applicable to tax return preparers for disclosed positions would be reasonable basis, but 

for certain reportable transactions with a significant purpose of tax avoidance, the 

existing standard would persist, i.e., the preparer should have a reasonable belief that the 

position, more likely than not, would be sustained on the merits. 

IRS-57 
Section 3 – Budget and Performance Plan 

Taxpayer Services 

Appropriation Description 

The Taxpayer Services appropriation provides funding for taxpayer service activities and 

programs including: forms and publications; processing tax returns and related 

documents; filing and account services; taxpayer advocacy services; and taxpayer 

assistance. 

The Taxpayer Services Budget request for FY 2009 is $2,150,000,000 in direct 

appropriations and 30,792 FTE. The FY 2009 funding for the direct appropriation 

maintains the FY 2008 enacted level and is an increase of 426 FTE over the FY 2008 

level of 31,218 FTE. 

IRS-58 
2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 31,218 $2,150,000

Changes to Base:

Maintaining Current Levels $54,726

Pay Annualization 14,435

Pay Inflation Adjustment 38,823

Non-Pay Inflation Adjustment 1,468

Efficiencies/Savings (207) ($14,969)

(207) (8,996)

(5,973)

(177)

(287) ($46,911)

(262) (31,200)

(25) (7,711)

(8,000)

(249) ($44,220)

Increase e-File Savings

Non-Recur Savings

Base Reinvestments 30 $4,463

Increase Efficiency through Submission Processing Consolidations 2,006

Address Correspondence Inventory 30 2,457

Subtotal Changes to Base $44,220

Total FY 2009 Base - Current Services 31,041 $2,194,220

Program Changes:

Program Decreases:

Taxpayer Assistance Centers and Outreach

Taxpayer Advocate Service 

Volunteer Income Tax Assistance Grants Program

Program Increases - Enforcement Initiatives 38 $2,691

Reduce the Tax Gap for Small Business / Self-Employed 38 2,691

Subtotal FY 2009 Program Changes

Total FY 2009 Request 30,792 $2,150,000

IRS-59 
2.2 – Operating Levels Table

Dollars in Thousands 

Appropriation Title: Taxpayer Services FY 2007 

Enacted

FY 2008

President's 

Budget

Cong. 

Action 

including 

Rescission

FY 2008 

Enacted 

Level 

FY 2009

Requested

Level

FTE 31,557 31,120 98 31,218 30,792

Object Classification:

11.1 Full-Time Permanent Positions............................ $1,134,191 $1,176,433 $30,700 $1,207,133 $1,206,453

11.3 Other than Full-Time Permanent Positions......... 320,431 319,641 (502) 319,139 320,840

11.5 Other Personnel Compensation.......................... 76,769 86,714 82,367 84,003

11.8 Special Personal Services Payments................. 0 0 $0 $0 $0

11.9 Personnel Compensation (Total)................... $1,531,391 $1,582,788 $25,851 $1,608,639 $1,611,296

12.0 Personnel Benefits................................................ 391,036 328,643 306,566 318,294

13.0 Benefits to Former Personnel.............................. 3,441 3,243 5,968 9,211 5,307

21.0 Travel.....................................................................

(4,347)

(22,077)

. 29,847 28,724 2,690 31,414 28,866

22.0 Transportation of Things....................................... 4,548 4,405 2,056 6,461 6,501

23.1 Rental Payments to GSA...................................... 00000

23.2 Rent Payments to Others...................................... 46 0 44 44 45

23.3 Communications, Utilities, & Misc........................ 4,073 4,982 4,584 4,612

24.0 Printing and Reproduction...................................

(398)

. 9,827 8,124 1,017 9,141 8,948

25.1 Advisory & Assistance Services........................... 18,862 4,374 19,952 24,326 24,477

25.2 Other Services....................................................... 43,869 99,774 99,549 100,428

25.3 Purchase of Goods/Serv. from Govt. Accts......

(225)

... 65,927 11,459 2,863 14,322 14,409

25.4 Operation & Maintenance of Facilities................. 71 94 0 94 94

25.5 Research & Development Contracts................... 00000

25.6 Medical Care......................................................... 00000

25.7 Operation & Maintenance of Equipment............. 8,121 667 0 667 671

25.8 Subsistence & Support of Persons...................... 1,456 1,455 120 1,575 1,485

26.0 Supplies and Materials......................................... 12,662 11,527 50 11,577 11,601

31.0 Equipment.............................................................. 827 567 0 567 570

32.0 Lands and Structures........................................... 130000

33.0 Investments & Loans............................................. 00000

41.0 Grants, Subsidies.................................................. 11,950 12,232 9,000 21,232 12,315

42.0 Insurance Claims & Indemn................................. 271 31 0 31 81

43.0 Interest and Dividends................................. 00000

44.0 Refunds.................................................................. 00000

91.0 Unvouchered.............................................. 00000

Total Budget Authority....................................... $2,138,238 $2,103,089 $46,911 $2,150,000 $2,150,000

Budget Activities:

Pre-filing Taxpayer Assistance & Education............... $576,537 $589,882 $55,493 $645,375 $617,326

Filing & Account Services....................................... 1,561,701 1,513,207 1,504,625 1,532,674

Total Budget Authority....................................... $2,138,238 $2,103,089 $46,911 $2,150,000 $2,150,000

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

(8,582)

IRS-60 
2.3 – Appropriation Detail Table 

Dollars in Thousands 

Taxpayer Services

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Pre-Filing Taxpayer Assistance and Education 5,626 $573,685 6,091 $576,537 6,313 $645,375 6,063 $617,326 -3.96% -4.35%

Filing and Account Services 26,282 1,559,779 25,466 1,561,701 24,905 1,504,625 24,729 1,532,674 -0.71% 1.86%

Subtotal New Appropriated Resources 31,908 $2,133,464 31,557 $2,138,238 31,218 $2,150,000 30,792 $2,150,000 -1.36% 0.00%

Other Resources:

Recoveries 275 275

Offsetting Collections - Reimbursable 310 20,924 314 20,924 327 21,715 341 22,454 4.28% 3.40%

Available multi-year/no-year funds 15,866 15,866 6,286 6,286 0.00% 0.00%

50% Carryover 27,924 27,924

Transfers In/Out

Mandatory Appropriations - User Fees 64,659 64,659 95,750 126,950 0.00% 32.58%

Subtotal Other Resources 310 $129,648 314 $129,648 327 $123,751 341 $155,690 4.28% 25.81%

Total Resources Available for Obligation 32,218 $2,263,112 31,871 $2,267,886 31,545 $2,273,751 31,133 $2,305,690 -1.31% 1.40%

% Change

Obligations Enacted to FY 2009

FY 2008

Resources Available for Obligation

FY 2007 FY 2007 FY 2008 FY 2009

Enacted 1 Request

3A – Pre-Filing Taxpayer Assistance and Education ($617,326,000 in direct 

appropriation, and $905,000 from reimbursable programs): 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, web sites, 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’ disputes on tax returns through prompt identification, referral, and 

settlement. 

• National Distribution Center processes orders for IRS forms and publications 

received from individual taxpayers, tax practitioners, and IRS tax return preparation 

partners. 

IRS-61 
3.2.1 – Budget and Performance Plan 

Dollars in Thousands 

Pre-Filing Taxpayer Assistance & Education Budget Activity

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $559,249 $573,685 $576,537 $645,375 $617,326

Reimbursable Resources 1,038 843 843 877 905

Mandatory Appropriations - User Fees 1,201 1,201 0 0

Total Resources $560,287 $574,528 $578,581 $646,252 $618,231

Pre-Filing Taxpayer Assistance & Education Budget Activity FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measure Actual Actual Actual Target Target Target

91.4% 83.0% 83.5% 85.2% 86.0% 86.0%

80.0% 61.2% 84.0% 79.6% 86.0% 86.0%

42.5% 46.8% 49.5% 48.6% 51.5% 52.5%

80.0% * * 75%-85% 75%-80% 75%-80%

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

*The methodology for estimating the eligibility rate is being revised. Data not available.

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

Timeliness ofCritical Filing Season Tax Products to the Public (Ot)

Timeliness ofCritical Other Tax Products to the Public (Ot)

Percent of Eligible Taxpayers Who File for EITC (Oe)

Taxpayer Self Assistance Rate (E) (L)

1

Description of Performance 

Improved service options for taxpayers and simplifying the tax process are key objectives 

under the IRS strategic goal to improve taxpayer service. Helping taxpayers understand 

their tax reporting and payment obligations remains a vital part of maintaining public 

confidence in administering the tax laws. The IRS continued to expand its outreach by 

relying on partner organizations such as state taxing authorities and volunteer groups, 

such as Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly, to 

help serve taxpayer needs. The IRS also provided assistance to millions of taxpayers 

through toll-free call sites, the IRS.gov website and Taxpayer Assistance Centers (TACs). 

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 our customers. By augmenting and opening these avenues of 

communication, the IRS is able to quickly identify and respond to emerging issues in tax 

compliance and to more efficiently provide education and outreach to a wider population 

of taxpayers to improve compliance. 

To further address taxpayer needs, the IRS delivered two phases of the TAB to Congress 

and established a Taxpayer Services Program Management Office and IRS Services 

Committee to formalize integrated service investment decision-making. The TAB 

Phase 2 Report outlines a five-year plan for taxpayer service that will help the IRS 

enhance the services delivered to taxpayers and partners. The report contains 

performance metrics, service improvement initiatives, and an implementation strategy for 

IRS-62 
improving service investment decisions. It also outlines the future direction of IRS 

service delivery and identifies strategic challenges facing taxpayers and the IRS. 

The report Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance

identifies current tax gap activities and presents the steps being taken to reduce 

opportunities for tax evasion, leverage technology, and support legislative proposals to 

improve compliance. It provides an outreach approach to ensure all taxpayers understand 

their tax obligations and highlights the importance of having a multi-year research 

program to help the IRS understand both the scope of and reasons for non-compliance 

while reaffirming the need to minimize burden for compliant taxpayers. 

These reports, combined with legislative changes and tax simplification, will provide the 

roadmap necessary to deliver on the important priorities of service and enforcement, and 

lead to improved compliance. 

Despite late enactment of tax law changes in December 2006, over 83.5 percent (137 of 

164) of the critical filing season tax products and 84 percent of critical other (business)

tax products were delivered to the public on time in FY 2007. Over 1,000 tax product 

revisions were required. The Tax Relief and Health Care Act of 2006 (TRHCA) included 

the extension of several significant tax benefits. However, because TRHCA was enacted 

after the forms and publications for Tax Year 2006 were printed and distributed, the IRS 

was required to notify taxpayers how to modify their claims for the allowable benefits. In 

addition, all 401 TACs remained open and serviced over 7 million taxpayers. 

The FY 2007 taxpayer self-assistance rate was 49.5 percent, higher than the FY 2007 

target of 48.6 percent. This success is primarily attributed to the increased use of the 

“Where’s My Refund?” self-service internet application, which is up 30 percent (totaling 

32.1 million taxpayers). The implementation of improvements to the IRS website, 

including the addition of a sales tax deduction calculator, 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 of providing all of its published 

products in electronic format. 

Over 83,000 taxpayer returns requested the split refund option. The capability to split 

refunds in the 2007 filing season provided individual taxpayers with a new option of 

choosing direct deposit for depositing their tax refunds to different accounts. All 

taxpayers who filed using any of the 1040 series forms had the option to divide their 

refunds in up to three financial accounts including individual retirement accounts, over 

500 college savings plans, savings bonds, or a variety of other accounts. 

IRS-63 
In FY 2007, the IRS also improved services for Earned Income Tax Credit (EITC) 

participants through the following actions: 

• Developed a three-point plan expanding outreach initiatives and identified ways 

to simplify and improve forms and make IRS.gov more user friendly; 

• Held an EITC Awareness Day, a nationwide media campaign to increase 

awareness of the EITC among eligible taxpayers, especially those with limited 

English proficiency; 

• Developed outreach strategies and products to reach and increase participation 

among the underserved EITC populations, such as Hispanic and rural 

communities; and 

• Increased partnerships with community-based organizations dedicated to assisting 

taxpayers with financial literacy, return preparation, and tax return filing, which 

increased IRS outreach by 15 percent and return preparation by 18 percent from

FY 2006. 

The IRS partners with organizations such as state taxing authorities and volunteer groups 

to serve taxpayer needs. Through its 11,922 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. In FY 2006, 69,000 volunteers filed 

approximately 2.3 million returns, a 7 percent increase over FY 2005. This trend 

continued in FY 2007, with 76,619 volunteers located at the sites preparing 

approximately 2.63 million returns, a 14 percent increase over FY 2006. 

The IRS established 16 new Low Income Taxpayer Clinics (LITC) in rural areas to help 

taxpayers who cannot afford representation obtain competent assistance in meeting their 

obligations. LITCs reduce taxpayer uncertainty and errors by clarifying taxpayer rights 

and responsibilities, and through their outreach efforts, offer effective information and 

education. Existing procedures were also enhanced to secure translators for any taxpayer 

seeking assistance in a language other than English or Spanish. 

In FY 2008, the IRS will continue improvements to better serve taxpayers. Efforts to 

increase electronic filing will continue, including adding new forms and schedules to the 

business electronic portfolio, leveraging partner organizations such as state taxing 

authorities, and increasing use of volunteers to better serve taxpayer needs. 

3A – Filing and Account Services ($1,532,674,000 in direct appropriation, $21,549,000 

from reimbursable programs, and $126,950,000 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. 

IRS-64 
• Submission Processing processes paper and electronically-submitted tax returns 

and supplemental documents, accounts for tax revenues, 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 Tax Administration markets and administers electronic tax 

administration products and services. 

• 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. 

3.2.2 – Budget and Performance Plan 

Dollars in Thousands 

Filing and Account Services

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $1,568,209 $1,559,779 $1,561,701 $1,504,625 $1,532,674

Reimbursable Resources 24,242 20,081 20,081 20,838 21,549

Mandatory Appropriations - User Fees 63,458 63,458 95,750 126,950

Total Resources $1,592,451 $1,643,318 $1,645,240 $1,621,213 $1,681,173

Filing and Account Services FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measures Actual Actual Actual Target Target Target

51.1% 54.1% 57.1% 57.0% 61.8% 64.7%

17.8% 16.6% 19.1% 19.5% 20.8% 22.8%

89.0% 90.9% 91.2% 91.0% 91.0% 91.0%

91.5% 93.2% 93.4% 93.3% 93.5% 93.7%

7,585 7,414 7,648 7,702 8,000 8,100

82.6% 82.0% 82.1% 82.0% 82.0% 82.0%

99.2% 99.3% 98.9% 99.2% 98.4% 98.4%

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

Customer Service Representative (CSR) Level of Service (Oe) (L)

Refund Timeliness - Individual (paper) (Ot)

Customer Contacts Resolved per Staff year (E)

Percent Individual Returns Processed Electronically (Oe) (L)

Percent of Business Returns Processed Electronically (Oe) (L)

Customer Accuracy - Tax Law Phones (Ot)

Customer Accuracy - Customer Accounts (Phones) (Ot)

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

Description of Performance 

The IRS delivered a successful 2007 filing season notwithstanding new challenges that

included implementing the Telephone Excise Tax Refund (TETR, a one-time payment

designed to refund long distance telephone taxes); introducing split refund capability, 

which provided taxpayers with more control over their refunds by allowing direct deposit 

of a refund to up to three financial accounts; and making the necessary changes to forms

IRS-65 
and systems to accommodate late passage of provisions of the Tax Relief and Health 

Care Act of 2006. During the 2007 filing season, the IRS: 

• Processed more than 139.7 million individual returns and issued more than 

105.5 million refunds totaling $261 billion; 

• Maintained a telephone level of service of 82.1 percent while answering 33.2 million 

calls; 

• Correctly responded to 91.2 percent of tax law questions and 93.4 percent of account 

questions received via the telephone; 

• Served over 7 million taxpayers at 401 Taxpayer Assistance Centers; and

• Increased electronic filing:

• Individual returns electronically filed reached 57.1 percent, up from 54.1 percent 

in 2006; 

• Business returns electronically filed reached 19.1 percent, up from 16.6 percent in 

2006; 

• Home computer filing increased to 22.5 million returns, an 11 percent 

improvement over 2006; and 

• Tax professional use of e-file increased to 57.2 million returns or 10 percent over 

2006. 

In FY 2007, 3.9 million taxpayers used the Free File Alliance, the partnership between 

the IRS and a consortium of tax preparation software companies. In the same year, the 

IRS negotiated an amendment to the agreement with the Free File Alliance that removed 

ancillary products from the free-filing process. Qualified taxpayers were able to prepare 

and e-file their returns without the distraction of advertisements for various products. In 

addition, the IRS launched a Spanish Free File page with two companies providing tax 

preparation software in Spanish. 

In FY 2007, the IRS also successfully delivered the TETR, a one-time credit available on 

federal income tax returns designed to refund previously collected long distance 

telephone taxes. The IRS integrated approach to educate and assist taxpayers included: 

• Using regular IRS income tax processing channels and existing income tax forms 

by adding a line for TETR on every form; 

• Developing a methodology for claiming the credit using a standard amount for 

individuals and an estimation formula for businesses; 

• Reprogramming major filing systems to process the TETR credit with the filing of 

individual tax returns; 

• Creating a new form for individuals without an income tax filing requirement to 

claim the credit; and 

• Implementing an extensive communication strategy that focused on education, 

maximizing media reach, and publicizing compliance issues. 

For the 2007 filing season, the IRS issued 22 news releases, eight “Tax Tips,” and 

messages included in over 4,000 articles related to taxes and tax filing. To further assist 

taxpayers and the practitioner community, the IRS launched a TETR web page on 

IRS.gov that was viewed by more than 4.5 million people. 

IRS-66 
Successful delivery of the integrated TETR approach enabled the filing of over 

94 million 2006 federal income tax returns including TETR refund claims, which are 

more than $4.81 billion in telephone excise tax refunds. In addition, the IRS prevented 

more than $291 million in potential erroneous refunds with the aid of a return selection 

tool created specifically to catch questionable TETR requests. The comprehensive 

approach to administering this refund allowed the IRS to successfully meet taxpayer and 

stakeholder expectations. 

In FY 2008, the IRS will continue to research and evaluate information regarding 

taxpayer service needs, priorities, and preferences to improve delivery of services that 

support taxpayer-preferred approaches for obtaining information or services. The IRS 

will seek opportunities to invest in technology, process improvement, and training to 

achieve consistent repeatable quality service with reduced costs. 

The FY 2009 Budget request provides additional resources to increase efficiencies in 

submissions processing by continuing site consolidations and by increasing individual 

and business electronic filing. 

IRS-67 
Enforcement 

Appropriation Description 

The Enforcement appropriation funds 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; and the securing of unfiled tax returns and collecting unpaid accounts. 

The Enforcement Budget request for FY 2009 is $5,117,267,000 in direct appropriations 

and 49,792 FTE. This is an increase of $337,267,000 or 7.1 percent and 2,443 FTE over 

the FY 2008 enacted level of $4,780,000,000 and 47,349 FTE. 

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 47,349 $4,780,000

Changes to Base:

Maintaining Current Levels $126,003

Pay Annualization 33,184

Pay Inflation Adjustment 87,006

Non-Pay Inflation Adjustment 5,813

Transfers ($1,000)

(1,000)

(538) ($48,762)

(538) (48,762)

(538)

Transfer to FinCEN

Efficiencies/Savings

Efficiency Savings

Subtotal Changes to Base $76,241

Total FY 2009 Base - Current Services 46,811 $4,856,241

Program Changes:

Program Increases - Enforcement Initiatives 2,981 $261,026

Reduce the Tax Gap for Small Business / Self-Employed 1,570 132,093

Reduce the Tax Gap for Large Businesses 515 57,009

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance 359 35,473

Increase Reporting Compliance of U.S. Taxpayers with Offshore Activity 124 11,075

Expand Document Matching 413 25,376

Subtotal FY 2009 Program Changes 2,981 $261,026

Total FY 2009 Request 49,792 $5,117,267

IRS-68 
2.2 – Operating Levels Table

Dollars in Thousands 

Appropriation Title: Enforcement FY 2007 

Enacted

FY 2008

President's 

Budget

Cong. 

Action 

including 

Rescission

FY 2008 

Enacted 

Level 

FY 2009

Requested

Level

FTE 48,307 49,140 (1,791) 47,349 49,792

Object Classification:

11.1 Full-Time Permanent Positions............................ $3,193,531 $3,394,207 $3,279,944 $3,490,824

11.3 Other than Full-Time Permanent Positions........

($114,263)

. 85,058 97,309 86,817 89,150

11.5 Other Personnel Compensation.........................

(10,492)

. 138,672 171,714 146,354 156,069

11.8 Special Personal Services Payments................. 17,494 17,499 17,268 17,726

11.9 Personnel Compensation (Total)................... $3,434,755 $3,680,729 $3,530,383 $3,753,769

12.0 Personnel Benefits................................................ 915,516 926,653 920,205 987,447

13.0 Benefits to Former Personnel.............................. 2,3060000

21.0 Travel.....................................................................

(25,360)

(231)

($150,346)

(6,448)

. 135,827 145,802 143,789 184,360

22.0 Transportation of Things......................................

(2,013)

. 11,786 5,685 883 6,568 6,731

23.1 Rental Payments to GSA...................................... 550000

23.2 Rent Payments to Others...................................... 410 383 68 451 459

23.3 Communications, Utilities, & Misc........................ 29,261 6,642 4,682 4,808

24.0 Printing and Reproduction...................................

(1,960)

. 8,440 5,443 5,435 5,589

25.1 Advisory & Assistance Services..........................

(8)

. 17,562 21,209 9,831 31,040 32,486

25.2 Other Services....................................................... 50,516 59,830 1,674 61,504 64,849

25.3 Purchase of Goods/Serv. from Govt. Accts......... 37,505 25,642 1,993 27,635 26,734

25.4 Operation & Maintenance of Facilities................. 182 163 77 78

25.5 Research & Development Contracts..................

(86)

. 2,925 2,908 1 2,909 2,960

25.6 Medical Care......................................................... 200000

25.7 Operation & Maintenance of Equipment............. 2,196 6,747 1,709 1,745

25.8 Subsistence & Support of Persons.....................

(5,038)

. 2,637 3,289 717 4,006 4,121

26.0 Supplies and Materials......................................... 23,739 24,342 4,923 29,265 30,761

31.0 Equipment.............................................................. 3,102 5,361 4,912 4,999

32.0 Lands and Structures........................................... 00000

33.0 Investments & Loans............................................

(449)

. 00000

41.0 Grants, Subsidies.................................................. 158 337 0 337 187

42.0 Insurance Claims & Indemn................................. 2,284 401 305 311

43.0 Interest and Dividends..............................

(96)

... 00000

44.0 Refunds.................................................................. 00000

91.0 Unvouchered.............................................. 5,295 3,932 856 4,788 4,873

Total Budget Authority....................................... $4,686,477 $4,925,498 $4,780,000 $5,117,267

Budget Activities:

Investigations...................................................

($145,498)

... $576,785 $602,385 $593,794 $603,466

Exam and Collections .......................................

(8,591)

... 3,959,741 4,164,361 4,038,309 4,363,826

Regulatory ......................................................

(126,052)

... 149,951 158,752 147,897 149,975

Total Budget Authority....................................... $4,686,477 $4,925,498 $4,780,000 $5,117,267 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

(10,855)

($145,498)

IRS-69 
2.3 – Appropriation Detail Table

Dollars in Thousands 

Enforcement

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Investigations 4,283 $573,469 4,315 $576,785 4,278 $593,794 4,239 $603,466 -0.91% 1.63%

Exam and Collections 42,334 3,932,874 42,751 3,959,741 41,842 4,038,309 44,389 4,363,826 6.09% 8.06%

Regulatory 1,225 146,213 1,241 149,951 1,229 147,897 1,164 149,975 -5.29% 1.41%

Subtotal New Appropriated Resources 47,842 $4,652,556 48,307 $4,686,477 47,349 $4,780,000 49,792 $5,117,267 5.16% 7.06%

Other Resources:

Recoveries 98 98

Offsetting Collections - Reimbursable 116 41,460 115 41,460 120 42,522 125 43,700 4.17% 2.77%

Available multi-year/no-year funds 2,286 2,286 5,746 5,746

50% Carryover 4,325 4,325

Transfers In/Out (18,948) (18,948)

Mandatory Appropriations - User Fees 5,452 5,452 59,254

Subtotal Other Resources 116 $34,673 115 $34,673 120 $107,522 125 $49,446 4.17% -54.01%

Total Resources Available for Obligation 47,958 $4,687,229 48,422 $4,721,150 47,469 $4,887,522 49,917 $5,166,713 5.16% 5.71%

% Change

Obligations Enacted to FY 2009

FY 2008

Resources Available for Obligation

FY 2007 FY 2007 FY 2008 FY 2009

Enacted 1 Request

3A – Investigations ($603,466,000 in direct appropriation and $33,678,000 from 

reimbursable programs): This budget activity funds the IRS Criminal Investigations (CI) 

programs that explore potential criminal violations of the internal revenue tax laws, 

enforce criminal statutes relating to these violations, and recommend prosecution as 

warranted. This includes the following program activities: 

• CI 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 involving 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. 

• General Management and Administration supports the headquarters management 

activities of strategic planning, communications, finance, and human resources for 

CI activities.

• 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 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $599,878 $573,469 $576,785 $593,794 $603,466

Reimbursable Resources 33,306 32,441 32,441 32,817 33,678

Mandatory Appropriations - User Fees 0 0 0 0 0

Total Resources $633,184 $605,910 $609,226 $626,611 $637,144

Investigations Budget Activity FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measure Actual Actual Actual Target Target Target

4,104 4,157 4,269 4,000 4,000 4,025

2,151 2,019 2,155 2,069 2,135 2,135

91.2% 91.5% 90.2% 92.0% 92.0% 92.0%

$295,316 $328,750 $301,788 $314,008 $317,625 $317,625

Number of Convictions (Oe) (L)

Conviction Rate (Oe) (L)

Conviction Efficiency Rate ($) (E) (L)

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

Criminal Investigations Completed (Ot) (L)

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

Description of Performance 

Enforcement of criminal statutes is an integral component of IRS efforts to enhance 

voluntary compliance and enforce the tax laws. In FY 2006, criminal investigations 

completed exceeded the target of 3,945 by 5 percent. Both the referral acceptance rate 

(71.8 percent) and total number of referrals accepted (445) were higher than last year. 

Abusive tax schemes and shelters were a concern in FY 2006 and remained a high 

investigative priority in FY 2007 due to egregious activities in areas of corporate fraud 

and tax avoidance of high-income individuals. 

 

In FY 2007, the IRS continued its focus on legal source tax investigations, partnering 

with other law enforcement agencies to develop significant tax, money laundering, and 

other financial investigations that adversely affect tax administration. The IRS also took 

steps to combat fraudulent and financial crime schemes identified through improved case 

development efforts and Bank Secrecy Act (BSA) investigations. Performance levels 

remained high in FY 2007: 

• Completed 4,269 criminal investigations, exceeding the target of 4,000. 

• Maintained a conviction rate of over 90 percent. 

• Increased acceptance rate by the Department of Justice to 94.6 percent, higher than 

the FY 2006 rate of 92.2 percent; and the acceptance rate by the U.S. Attorney 

increased to 90.2 percent, 2 percent higher than the 88.3 percent achieved in FY 2006. 

• Obtained 2,155 convictions, exceeding the target of 2,069. 

• Stopped fraudulent claims in excess of $1 billion through IRS Fraud Detection 

Centers. 

IRS-71 
In FY 2009, CI will aggressively attack tax evasion and reduce the tax gap. CI will focus 

on abusive tax schemes, corporate fraud, nonfilers, employment tax fraud, general fraud, 

narcotics, tax and other financial crimes identified through Bank Secrecy Act (BSA) 

related examinations, and case development efforts. 

3A – Exam and Collections ($4,363,826,000 in direct appropriation and $9,905,000 

from reimbursable programs): This budget activity funds programs that enforce the tax 

laws through examination and collection programs that ensure proper payment and tax 

reporting. The budget activity also supports appeals and litigation activities associated 

with exam and collection. This includes the following program activities: 

• Compliance Services Management supports management associated with compliance 

program activities. 

• Payment Compliance – Correspondence Collection supports the 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 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 government’s interest 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 regarding unpaid tax liabilities identified from tax 

returns. 

• Tax Reporting Compliance – Field Exam compares taxpayer correct income levels 

and corresponding tax liabilities to ensure accuracy of taxpayer returns. This activity 

also provides determination letters, advance pricing agreements, and other 

determinations. 

• Fraud/Bank Secrecy Act enforces the anti-money laundering provisions of the Bank 

Secrecy Act (BSA) of 1970, and the USA PATRIOT Act of 2001. It examines nonbank 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 RAs 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. 

IRS-72 
• 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 and 

collection programs involving U.S. citizens residing abroad, non-resident aliens, 

expatriates, 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, and business system

planning and embedded training. 

• Whistleblowers provides staffing, training, and direct support to process, assess, and 

analyze incoming tips from individuals who identify tax problems wherever they may 

be encountered, including in their workplace, while conducting day-to-day personal 

business. 

• Communications and Liaison coordinates local government and liaison relationships; 

manages congressional, state, and national stakeholder relationships and issues; 

coordinates crosscutting issues including managing audits 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 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $3,925,839 $3,932,874 $3,959,741 $4,038,309 $4,363,826

Reimbursable Resources 9,851 8,764 8,764 9,592 9,905

Mandatory Appropriations - User Fees 5,452 5,452 59,254

Total Resources $3,935,690 $3,941,638 $3,973,957 $4,107,155 $4,373,731

Exam and Collections Budget Activity FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measure Actual Actual Actual Target Target Target

0.9% 1.0% 1.0% 1.0% 1.0% 1.0%

N/A 85.9% 85.9% 87.0% 87.0% 87.0%

N/A 88.2% 89.4% 89.0% 90.0% 90.0%

77.0% 85.0% 87.0% 88.0% 88.0% 89.0%

89.0% 96.0% 96.0% 97.0% 96.0% 96.0%

7.8% 7.3% 6.8% 8.2% 6.6% 6.8%

1,701 1,832 1,956 1,932 1,961 1,823

2.2% 2.4% 2.5% 2.5% 2.5% 2.5%

121 128 137 136 133 134

53.0% 54.0% 54.0% 54.0% 53.0% 53.0%

1,514 1,677 1,828 1,723 1,835 1,835

N/A 84.2% 84.0% 86.0% 86.0% 86.0%

88.5% 91.0% 92.9% 91.0% 92.0% 92.0%

Examination Quality (LMSB) - Coordinated Industry (Oe) (L)

Examination Coverage - Individual (Oe) (L)

Office Exam Embedded Quality (Oe) (L)

Field Exam Embedded Quality (Oe) (L)

Examination Quality (LMSB) - Industry (Oe) (L)

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

Examination Coverage - Business (Oe) (L)

AUR Efficiency (E) (L)

Key: Oe - Outcome Measure, E - EfficiencyMeasure, L - Long Term Goal

Field Collection Embedded Quality (Ot) (L)

Automated Collection System (ACS) Accuracy (Oe)

AUR Coverage (E) (L)

Examination Efficiency - Individual (E) (L)

Collection Coverage - Units (Ot) (L)

Collection Efficiency - Units (E) (L)

1

IRS-74 
Description of Performance 

Targeting the tax gap remained a top IRS priority for FY 2007. Total enforcement 

revenue was $59.2 billion, a 75 percent increase over 2001. The steady increase in 

enforcement revenue is primarily a result of concerted efforts by the IRS to detect and 

deter non-compliance with the tax code. In FY 2007, total individual audits increased 

8 percent, collection cases closed increased 12 percent, dollars collected increased 

13 percent, high-income audits increased 29 percent, small business audits increased 

17 percent, and corporate audits increased 3 percent from FY 2006. 

In FY 2007, the IRS continued to reengineer its examination and collection procedures to 

reduce time, increase yield, and expand coverage. The IRS is building on its enforcement 

efforts with emphasis on increased audits and collection activities. Emphasizing early 

identification of tax liabilities through increased audits and more focused collection 

activities, the IRS undertook the following actions: 

• Piloted new Automated Substitute for Return screening and batching procedures, with

the increased efficiencies resulting in a productivity improvement of over 

156 percent, from 7.5 cases per hour to 19.2 cases per hour; 

• Increased detection of fraudulent activities and increased the number of 

recommendations for civil fraud penalties by 49 percent over the prior year level; and 

• Developed an Employment Tax Strategy that includes eliminating/reducing overlaps 

and gaps in processes to enhance organizational effectiveness; expanding work 

relationships with federal and state authorities; conducting studies to better 

understand the tax gap; and assessing new ways to impact taxpayer behavior. 

The IRS substantially enhanced its productivity by implementing technological and 

process improvements in the Automated Underreporter (AUR), Examination, and 

Compliance Services Collection Operations. Significant improvements made in FY 2007 

included: 

• Implemented a new AUR case selection and scoring methodology for individuals, 

resulting in a 20.5 percent increase in AUR assessments; 

• Controlled and directed incoming Examination toll-free calls through an Intelligent 

Call Management system resulting in a 6.1 percent increase in the service level; and 

• Automated the processing of over 43 percent of installment agreement problem cases, 

which freed resources to process additional installment agreement compliance work. 

The IRS, through its Compliance Assurance Process (CAP) Pilot Program, continued to 

expand and work with large businesses to identify and resolve issues prior to return 

filing. The objective of the program is to reduce taxpayer burden and uncertainty while 

assuring tax returns are accurate prior to filing, thereby reducing or eliminating the need 

for post-filing examinations. CAP benefits both the IRS and the taxpayer by fostering 

compliance, reducing the time it takes to process a return, and improving both customer 

and employee satisfaction while maintaining a high level of quality. 

The IRS continued to deter tax shelter abuse and tax scheme promoters through targeted 

audits and aggressive litigation and publicity in FY 2007. The IRS made significant 

progress in resolving civil matters with promoters of abusive and listed tax shelter 

IRS-75 
transactions. In addition to sizeable penalty assessments and public admissions of 

regrettable behavior by businesses and some of their former employees, the IRS obt

future compliance agreements from all promoters. For FY 2007, penalties assessed and 

collected from the program totaled over $69 million. In addition, the IRS focused its 

efforts to combat abusive tax avoidance transactions (ATAT) by providing early 

guidance, addressing shelters at the promoter level, and increasing the strength of

response. The IRS will continue to aggressively address abusive transactions through 

enhanced identification techniques, published guidance, traditional examination 

processes, alternative dispute resolutions, communication, and resource allocation

ained 

ATAT

.

FY 2007, the IRS reorganized its international organization to better address the 

ficant

tional 

he exchange of information between a foreign revenue agency and the IRS led to the 

. In 

es

es 

FY 2008, the IRS will continue to reengineer its examination and collection 

IRS

creasing IRS enforcement presence remains a priority for FY 2009. The FY 2009 

e 

A – Regulatory ($149,975,000 in direct appropriation and $117,000 from 

nting of

Tax Law Interpretation and Published Guidance interprets the tax law through 

published guidance, technical advice, and other technical legal services. 

In

increasing scope of international tax administration where non-compliance is a signi

and growing problem. In addition, the IRS developed a comprehensive strategy to 

identify and highlight activities that will improve customer service, enhance interna

tax compliance, and modernize the IRS to more effectively keep pace with globalization. 

T

recent unraveling of an abusive cross-border tax scheme involving hundreds of taxpayers and tens of millions of dollars in improper deductions and unreported income

late 2007, the Joint International Tax Shelter Information Centre (JITSIC) will open a 

second office in London and the Japanese National Tax Agency will join. JITSIC shar

information and expertise in identifying and curbing tax avoidance and shelters. As 

collaboration between member countries continues to grow, more cross-border schem

will be uncovered, shared, and addressed. 

In

procedures to reduce processing time, increase yield, and expand coverage. The

plans to build on its enforcement efforts to further enhance early identification of tax 

liabilities through increased audits and focused collection activities. 

In

Budget provides additional resources to expand enforcement efforts in key areas of th

tax gap such as reporting, nonfiling, and payment. The FY 2009 request will also focus

efforts on targeted enforcement in the small business and self-employed taxpayer 

community, improve capabilities to examine large multinational corporations, and

improve tax gap research. 

3

reimbursable programs): This budget activity funds the development and pri

published IRS guidance materials; interpretation of tax laws; advice on general legal 

servicing, ruling and agreements; enforcement of regulatory rules, laws and approved

business practices; and supporting taxpayers in the areas of pre-filing agreements, 

determination letters, and advance pricing agreements. This includes the following

program activities: 

•

IRS-76 
• General Legal Services provides advice to the IRS on non-tax legal issues, inclu

procurement, personnel, labor relations, equal employment opportunity, f

ding 

iscal law, 

•

ing agreements, and other 

• y 

 integrity, and conduct of those who represent 

.2.5 – Budget and Performance Plan

Dollars in Thousands 

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 pric

pre-filing determinations and advice. 

Office of Professional Responsibility identifies, communicates, and enforces Treasur

Circular 230 standards of competence,

taxpayers before the IRS including attorneys, Certified Public Accountants (CPAs), 

enrolled agents, enrolled actuaries and appraisers, and other professionals. 

3

Regulatory

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $150,115 $146,213 $149,951 $147,897 $149,975

Reimbursable Resources 151 255 255 113 117

Mandatory Appropriations - User Fees

Total Resources $150,266 $146,468 $150,206 $148,010 $150,092

Regulatory Budget Activity FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measure Actual Actual Actual Target

1 Target1 Target1

126,481 108,462 109,408 118,200 100,600 98,000

1

 Additional resources were committed in FY 2007 to TEGE determination closures to reduce the backlog of applications and bring the inventory down to a 

sustainable level consistentwith projected annual receipts.

Key: Ot- Output/Workload Measure

TE/GE Determination Case Closures (Ot)

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

escription of Performance

ent presence in the tax-exempt and government entities 

ctor is particularly important given the role that a small number of these entities play in 

S 

t 

 of the determination process for 

xempt organizations by eliminating the backlog of cases in this area. Over the course of 

D

Maintaining a strong enforcem

se

accommodating abusive transactions entered into by taxable parties. In FY 2007, the IR

expanded its enforcement presence by conducting reviews of executive compensation 

practices among tax-exempt organizations. New outreach tools were developed and 

deployed including www.stayexempt.org, a popular tax compliance website for exemp

entities; web-based tools to help tax exempt entities understand their federal tax 

requirements; and workshops to assist remote tribal villages in understanding federal and

state employment tax and other reporting requirements. 

In FY 2007, the IRS focused on improving the timeliness

e

FY 2007, the unassigned inventory was reduced by 35 percent, cutting 34 days from the 

average time in inventory. 

IRS-77 
For FY 2007, the IRS achieved 93 percent of the target of 118,200 determination case 

closures. This was caused by several factors. First, workload in this area is driven by

xternal demand; for various reasons, the IRS received 12,000 fewer applications than 

In

ce Before the

ternal Revenue Service) were published. These regulations address weaknesses in the 

rds and

d protest for

rivate debt collection services, negotiated a Memorandum of Understanding offering 

e

expected. Responding to customer requests, the IRS extended certain filing deadlines.

addition, following a major revision to the user fee schedule for determination, a large 

number of submissions were returned to applicants due to incorrect user fees. Finally, 

legislative changes in the Pension Protection Act shifted workload priorities toward a 

number of time-consuming cases, resulting in fewer closures overall. 

The IRS faces a wide variety of non-tax legal issues. In September 2007, final 

regulations under Treasury Circular 230 (Regulations Governing Practi

In

current regulatory scheme to ensure that tax professionals are adhering to standa

following the law, a key objective to success in enforcing the tax laws. 

In FY 2007, IRS General Legal Services (GLS) litigated cases involving practitioner who

advised on questionable tax transactions, successfully defended an awar

p

online tax return preparation and filing services, worked on promulgation of guidance in 

connection with the recently enacted whistleblower statute, and drafted informant 

agreements concerning the recovery of taxes due. 

IRS-78 
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 also 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 2009 is $3,856,172,000 in direct 

appropriations and 11,989 FTE. This is an increase of $176,113,000 or 4.8 percent and a 

decrease of 192 FTE over the FY 2008 enacted level of $3,680,059,000 and 12,181 FTE. 

Taxpayer Service and Enforcement Allocation

The IRS allocates funding in this appropriation to either the taxpayer service or 

enforcement program. 

The IRS allocates the Operations Support account funding and FTE into activities 

supporting taxpayer service and enforcement to identify the full cost of operating these 

programs. The IRS developed a methodology to assign the appropriation funding to the 

core program that these resources support, which is updated and improved on an ongoing 

basis. Operations Support uses several allocation methodologies: 

• Costs specifically related to either a taxpayer service or enforcement activity, such 

as an Information Technology (IT) system used only for enforcement purposes, 

are allocated directly to the program supported; 

• Service-wide costs, such as printing and postage, that pertain to both taxpayer 

service and enforcement are allocated based on historical usage; and 

• Other support costs, such as physical security services and rent payments, are 

primarily allocated by FTE. 

The Operations Support funds allocated to the taxpayer services and enforcement 

programs in FY 2009 use the FY 2008 President’s Budget allocation methodology. In 

order to execute FY 2009 spending, the Administration is proposing language to adjust 

Operations Support allocations by up to 1 percent with prior notification to the 

Appropriations Committees. 

IRS-79 
Support of Information Technology to the Taxpayer Services and Enforcement 

Programs 

The IRS information technology 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 information technology 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, multi-billion 

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 delivering the filing 

season 

• Managing existing information technology and developing new IT systems 

• 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

• 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. 

IRS-80 
2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 12,181 $3,680,059

Changes to Base:

Maintaining Current Levels $82,580

Pay Annualization 9,883

Pay Inflation Adjustment 25,399

Non-Pay Inflation Adjustment 47,298

Transfers ($1,370)

(1,370)

(230) ($30,367)

(230) (22,443)

(1,304)

(6,620)

(230)

Transfer to TIGTA

Efficiencies/Savings

Efficiency Savings

Increase e-File Savings

Non-Recur Savings

Base Reinvestments $28,141

Fully Fund Postage Base 28,141

Subtotal Changes to Base $78,984

Total FY 2009 Base - Current Services 11,951 $3,759,043

Program Changes:

Program Increases - Enforcement Initiatives 38 $97,129

Reduce the Tax Gap for Small Business / Self-Employed 33,714

Reduce the Tax Gap for Large Businesses 4 12,479

Improve Tax Gap Estimates, Measurement, and Detection of Non-Compliance 34 15,585

Increase Reporting Compliance of U.S. Taxpayers with Offshore Activity 2,622

Expand Document Matching 9,684

Implement Legislative Proposals to Improve Compliance 23,045

Subtotal FY 2009 Program Changes 38 $97,129

Total FY 2009 Request 11,989 $3,856,172

IRS-81 
2.2 – Operating Levels Table 

Dollars in Thousands 

Appropriation Title: Operations Support FY 2007 

Enacted

FY 2008

President's 

Budget

Cong. 

Action 

including 

Rescission

FY 2008 

Enacted 

Level 

FY 2009

Requested

Level

FTE 12,890 12,892 (711) 12,181 11,989

Object Classification:

11.1 Full-Time Permanent Positions............................ $939,639 $1,006,173 $960,155 $978,431

11.3 Other than Full-Time Permanent Positions........

($46,018)

. 11,883 11,120 10,680 21,800 22,332

11.5 Other Personnel Compensation.......................... 32,757 68,257 31,250 32,073

11.8 Special Personal Services Payments................. 00000

11.9 Personnel Compensation (Total)................... $984,279 $1,085,550 $1,013,205 $1,032,836

12.0 Personnel Benefits................................................ 296,239 315,559 303,481 309,867

13.0 Benefits to Former Personnel.............................. 50,343 51,853 47,580 48,532

21.0 Travel.....................................................................

(37,007)

($72,345)

(12,078)

(4,273)

. 37,794 34,315 922 35,237 36,627

22.0 Transportation of Things....................................... 70,539 19,970 534 20,504 21,470

23.1 Rental Payments to GSA...................................... 628,829 649,433 628,759 653,627

23.2 Rent Payments to Others.....................................

(20,674)

. 3,9155056

23.3 Communications, Utilities, & Misc........................ 325,716 361,707 1,815 363,522 405,208

24.0 Printing and Reproduction.................................... 52,473 53,712 15 53,727 54,796

25.1 Advisory & Assistance Services........................... 54,645 44,312 47,294 91,606 93,114

25.2 Other Services....................................................... 424,290 428,496 395,119 427,449

25.3 Purchase of Goods/Serv. from Govt. Accts......

(33,377)

... 60,151 61,808 59,506 63,838

25.4 Operation & Maintenance of Facilities................

(2,302)

. 159,739 170,696 168,658 181,331

25.5 Research & Development Contracts..................

(2,038)

. 2,938 5,269 4,569 4,660

25.6 Medical Care......................................................... 10,005 10,245 0 10,245 10,764

25.7 Operation & Maintenance of Equipment............

(700)

. 60,105 68,203 67,681 70,048

25.8 Subsistence & Support of Persons.....................

(522)

. 393 278 1,000 1,278 1,304

26.0 Supplies and Materials......................................... 19,006 26,782 2,947 29,729 31,014

31.0 Equipment.............................................................. 246,451 325,661 7,452 333,113 360,820

32.0 Lands and Structures........................................... 54,246 55,132 51,826 48,139

33.0 Investments & Loans............................................

(3,306)

. 00000

41.0 Grants, Subsidies.................................................. 00000

42.0 Insurance Claims & Indemn................................. 2,739 601 108 709 722

43.0 Interest and Dividends................................. 00000

44.0 Refunds.................................................................. 00000

91.0 Unvouchered.............................................. 00000

Total Budget Authority....................................... $3,544,835 $3,769,587 $3,680,059 $3,856,172

Budget Activities:

Infrastructure ...................................................

($89,528)

... $845,203 $879,672 $843,720 $883,325

Shared Services & Support .................................

(35,952)

... 1,179,216 1,229,231 1,170,686 1,243,703

Information Services ..........................................

(58,545)

... 1,520,416 1,660,684 4,969 1,665,653 1,729,144

Total Budget Authority....................................... $3,544,835 $3,769,587 $3,680,059 $3,856,172 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

($89,528)

IRS-82 
2.3 – Appropriation Detail Table

Dollars in Thousands 

Operations Support

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Infrastructure $808,254 $845,203 $843,720 $883,325 0.00% 4.69%

Shared Services and Support 5,790 1,154,724 6,622 1,179,216 5,802 1,170,686 5,699 1,243,703 -1.78% 6.24%

Information Services 6,114 1,551,603 6,268 1,520,416 6,379 1,665,653 6,290 1,729,144 -1.40% 3.81%

Subtotal New Appropriated Resources 11,904 $3,514,581 12,890 $3,544,835 12,181 $3,680,059 11,989 $3,856,172 -1.58% 4.79%

Other Resources:

Recoveries 1,186 1,186

Offsetting Collections - Reimbursable 272 27,776 169 27,776 176 40,661 184 41,750 4.55% 2.68%

Available multi-year/no-year funds 28,018 28,018 43,039 43,039 0.00% 0.00%

50% Carryover 11,109 11,109

Transfers In/Out 23,500 23,500

Mandatory Appropriations - User Fees 66,678 66,678 103,368 50,705 0.00% -50.95%

Subtotal Other Resources 272 $158,267 169 $158,267 176 $187,068 184 $135,494 4.55% -27.57%

Total Resources Available for Obligation 12,176 $3,672,848 13,059 $3,703,102 12,357 $3,867,127 12,173 $3,991,666 -1.49% 3.22%

FY 2008

Resources Available for Obligation

FY 2007 FY 2007 FY 2008 FY 2009

Enacted 1 Obligations Enacted t Request o FY 2009

% Change

3A – Infrastructure ($883,325,000 in direct appropriation and $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, protections, 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-83 
3.2.6 – Budget and Performance Plan 

Dollars in Thousands 

Infrastructure

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $837,320 $808,254 $845,203 $843,720 $883,325

Reimbursable Resources 103 121 121 0 0

Mandatory Appropriations - User Fees 0 0 0 16,100 16,100

Total Resources $837,423 $808,375 $845,324 $859,820 $899,425 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

Description of Performance 

In FY 2007, the IRS continued to achieve cost savings associated with an aggressive rent 

management strategy. These savings, coupled with savings from previous years, have 

helped offset the increased infrastructure costs associated with infrastructure 

improvement initiatives such as the new Kansas City consolidated campus. 

Rent costs, including the costs of facility security, increased from $651.4 million in 

FY 2006 to $666.6 million in FY 2007. To partially fund this increase, the IRS achieved 

rent savings by identifying and completing 59 space reduction projects, releasing a 

cumulative total of 412,000 square feet. These projects have annualized savings 

estimated at $8.4 million. Through September 2007, the total rent cost increased by 

2.3 percent, far below the year-end target of 5.3 percent. 

In addition to the rent reduction projects mentioned above, the IRS and GSA embarked 

on a delegated leasing initiative designed to save commission fees and achieve negotiated 

lease savings. Leases already in effect or proposed to commence in FY 2008 will result 

in projected savings of $380,000 annually or $1.9 million over five years for 10 projects 

(subject to GSA approval). 

In FY 2008 and beyond, Real Estate and Facilities Management will develop a 

comprehensive real estate strategy, balancing mission critical planning assumptions with 

the condition, utility, and opportunity for project execution. The savings associated with 

this strategy are critical for addressing major campus construction projects as well as 

unfunded costs such as new mandates, rescissions, and other inflationary costs. 

IRS-84 
3A – Shared Services and Support ($1,243,703,000 in direct appropriation and 

$14,002,000 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, Office of 

Management and Budget [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. 

• Facilities Services provides services and supplies required to manage IRS facilities. 

• Procurement supports the procurement function of the IRS. 

• EEO 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. 

• Customer Support plans and manages financial services including relocation, travel, 

imprest fund, purchase cards, corporate express, and employee clearances. 

• Treasury Complaint Centers plans and manages 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 residing in the Media and Publication Organization provides 

operating divisions with printing and postage, including shipping of taxpayer and 

internal use materials. 

• Statistics of Income provides resources for market-based research to identify 

compliance issues; for conducting tests of treatments to address non-compliance; and 

for the implementation of successful treatments of taxpayer non-compliant behavior. 

• Research provides resources for researching annual income, financial, and tax data 

from tax returns filed by individuals, corporations, and tax-exempt organizations. 

• Security protects employees, facilities and assets, and the confidentiality of taxpayer 

information. 

• Security Services ensures that the IRS has effective security policies and programs in 

place to safeguard taxpayer records, employees, facilities, business processes, 

systems, and other resources. It includes operation of the Computer Systems Incident 

Response Center (CSIRC) and Situation Awareness and Management Centers 

(SAMC), coordination of service-wide disaster recovery and business continuity 

planning, security training and awareness, and sensitive system certification and 

IRS-85 
accreditation coordination with Treasury on the Federal Critical Infrastructure 

Protection Program. 

• Benefit Payments provides resources to fund Workers’ Compensation benefits and 

Unemployment Compensation for Federal Employees payments. 

• Shared Services provide additional services such as Public Transit Subsidy and 

Career Counselor Contract. 

3.2.7 – Budget and Performance Plan 

Dollars in Thousands 

Shared Services and Support

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $1,154,616 $1,154,724 $1,179,216 $1,170,686 $1,243,703

Reimbursable Resources 17,836 13,649 13,649 13,575 14,002

Mandatory Appropriations - User Fees 0 0 0 14,814 0

Total Resources $1,172,452 $1,168,373 $1,192,865 $1,199,075 $1,257,705 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

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. 

Workforce planning is a significant challenge. With a diverse population of more than 

100,000 employees and more than 700 locations across the country and overseas, the IRS 

works continuously to ensure that recruiting and training activities support a workforce 

that has the skills and competencies needed to accomplish the IRS mission. 

To meet changing business and technological demands, the IRS initiated a program to 

identify targeted occupations, skill sets, and hard-to-fill positions. The program features 

integration of all recruitment, hiring, and compensation efforts, along with the 

development of new and improved methods of predicting future attrition through 

retirements. Developing activities specifically targeted toward mitigating the impact of

retirements and attracting and retaining new hires with advanced skills continues to be 

critical to the successful delivery of IRS business goals. 

The IRS continued to enhance and implement its human capital strategy in FY 2007. The 

strategy includes bringing critical personnel on board and objectives for employee 

training, leadership development, and workforce retention. Actions taken in FY 2007 

included: 

• Established a Center of Excellence Office to determine the skills and 

competencies for each area of expertise; and 

• Developed training requirements and a new recruitment strategy. 

Future efforts are aimed at synchronizing the hiring of new staff with the retirement of 

older staff such that adequate knowledge transfer occurs. 

IRS-86 
Security of infrastructure and IT systems remains a top priority for the IRS. In FY 2007, 

the IRS continued to update its systems, processes, and training efforts to ensure taxpayer 

information is properly safeguarded. The IRS completed all required Federal Information 

Security Management Act activities; contingency plan testing on the 260 applications and 

systems on the master inventory; and live disaster recovery testing for all major 

applications. The IRS also established new offices, including a new Cybersecurity 

organization, and governing bodies to provide direction and oversight regarding the 

security and protection of sensitive information. As part of its security effort to protect 

sensitive information, the IRS: 

• Installed automatic full disk encryption on the total deployed inventory of over 

52,000 IRS laptops; 

• Implemented a secure electronic online solution for data exchanged with federal, 

state and other partners; 

• Deployed mandatory information protection training for all IRS employees and 

contractors with access to sensitive information; 

• Issued updated data protection policies, processes, and education training tools to 

improve employee awareness and skill levels; and 

• Deployed upgraded firewalls and intrusion detection devices. 

In FY 2007, the IRS began the process of validating the enterprise-wide Business Impact 

Analysis (BIA) to identify the effect computer application disruptions would have on the 

ability of the IRS to perform critical business processes. The BIA will be completed in 

FY 2008 and will provide the IRS with needed information to build a strong foundation 

for making effective risk management decisions. 

Research efforts also enable the IRS to develop strategies to combat specific areas of 

non-compliance, improve voluntary compliance, allocate resources more effectively, and 

reduce the tax gap. To support these efforts, the IRS undertook significant efforts to 

estimate voluntary taxpayer compliance in FY 2007. A reporting compliance study for 

Subchapter S corporations was initiated in FY 2007. A Tax Year (TY) 2006 individual 

income reporting compliance study began in October 2007. In addition, the IRS updated 

its workload selection models for TY 2006 using data from prior reporting compliance 

studies, enabling the IRS to better leverage limited enforcement resources and reduce the 

burden on compliant taxpayers. 

IRS success in improving its research capabilities was recognized in 2007 when the 

Compliance Data Warehouse (CDW) was named a 2007 Computerworld Honors 

Laureate. The CDW was nominated in the category of Government and Non-Profit 

Organizations for the extraordinary use of IT. The CDW offers a range of databases used 

by the IRS research community to support projects related to tax administration, 

enforcement, and customer service. 

The FY 2009 Budget request will allow the IRS to increase research efforts in 

understanding the reasons for taxpayer non-compliance. Efforts will focus on three 

components affecting taxpayer filing: taxpayer burden, tax law complexity, and 

IRS-87 
contributors to taxpayer error. Understanding these factors will improve voluntary 

compliance by targeting resources to the areas of greatest need. 

3A – Information Services ($1,729,144,000 in direct appropriation, $27,748,000 from 

reimbursable programs and $34,605,000 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 also responsible for operating and 

administering the hardware infrastructure of mainframes, servers, personal computers, 

networks, and a variety of management information systems. 

MITS is composed of discrete but intertwined organizations responsible for everything 

dealing with information systems and technology, ranging from cyber security and 

networks to applications development and end user equipment and services. They are 

described below. 

• Cyber security ensures effective security policies and programs to safeguard taxpayer 

records, business processes, and IT systems. The program establishes a governance 

process to perform vulnerability assessments and provide service-wide 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. 

• Modernization & IT Services (MITS) Strategic Sourcing funds the operations of the 

MITS Office of Strategic Sourcing with oversight of all A-76 efforts in the MITS 

organization. 

• National Headquarters (NHQ) ADP Management provides for the management and 

oversight of investments in IT for the Chief of Staff and 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 

Information 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. 

IRS-88 
• 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 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 replacement of the 

Service’s aging infrastructure is addressed corporately. 

• Treasury Working Capital Fund separates the telecommunications program budget 

required for paying Treasury billings for IRS corporate telecommunications services. 

IRS-89 
• Integrated Document Solutions Enterprise (IDSE) Campus Operations Most Efficient 

Organization (MEO) captures savings resulting from IDSE MEO activities. 

3.2.8 – Budget and Performance Plan 

Dollars in Thousands 

Information Services

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted Enacted Request

Appropriated Resources $1,510,449 $1,551,603 $1,520,416 $1,665,653 $1,729,144

Reimbursable Resources 3,330 14,006 14,006 27,086 27,748

Mandatory Appropriations - User Fees 0 66,678 66,678 72,454 34,605

Total Resources $1,513,779 $1,632,287 $1,601,100 $1,765,193 $1,791,497 1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

Description of Performance 

IT solutions are the most effective and efficient means of increasing the number of IRS 

contacts with taxpayers while also offering a greater variety of faster alternatives to file 

and pay their tax obligations. IT solutions also enhance the IRS ability to identify 

non-compliance and combat tax avoidance schemes that contribute to the tax gap. 

The technology environment at the IRS is extraordinarily complex because of high 

volumes, widely varying inputs from taxpayers (from simple records with just a few 

fields to complex documents of many megabytes), seasonal processing with extreme 

variations in processing load, transaction rates on the order of billions per year, and 

storage measured in trillions of bytes. Nevertheless, the IRS infrastructure modernization 

efforts have sustained records of achievement in implementing systems that yield 

tangible benefits for American taxpayers. 

In FY 2007, the IRS produced the timely delivery of quality software into production in 

preparation for the filing season and in the midst of numerous challenges. New 

legislative mandates required the IRS to implement initiatives such as the Telephone 

Excise Tax Refund (TETR). The rollout of additional IT modernized functions such as 

split refunds, the late passage of “extender” legislation, and processing changes to 

support business needs all required coordinated development, testing, and execution of 

many systems. 

Notable highlights of the FY 2007 filing season include: 

• Delivered “Split Refunds” capability. Taxpayers filing the 1040 tax forms were 

given the option to split their tax refunds in up to three financial accounts. The 

split refunds process gives taxpayers the choice of depositing their tax refunds 

directly into individual retirement accounts, over 500 college savings plans, 

savings bonds, or a variety of other accounts. Over 83,000 taxpayer returns used 

the split refunds option. 

• Supported E-Services application with over 236,000 registered users. The 

application allows tax practitioners to request Preparer Tax Identification 

IRS-90 
Numbers (PTINS), e-file applications, and transcripts; submit Powers of 

Attorney; and discuss tax matters electronically with the IRS. Additionally, it 

allows payers the ability to verify Tax Identification Numbers (TIN) and name

controls prior to filing. The application received over: 

o 3.9 million of TIN match requests; 

o 385,000 on-line requests of PTINS; 

o 219 million bulk TIN match requests; and 

o One million applications for an Employee Identification Number (EIN). 

For FY 2007, the IRS has made progress on FISMA compliance security metrics. The 

IRS has successfully completed security certification and accreditation for 98 percent of 

its IT systems, and is moving towards the goal of 100 percent certified and accredited. 

 

In FY 2008, the IRS will continue to develop and test the automated Correspondence 

Imaging System in addition to improving FISMA compliance. Maintaining the 

infrastructure, modernizing IRS information systems, and developing better tools will 

allow the IRS to operate more efficiently and with improved productivity. 

IRS-91 
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 2009 is $222,664,000 in direct appropriations and 

333 FTE. This is a decrease of $44,426,000 or 16.6 percent, and 25 FTE, over the 

FY 2008 enacted level of $267,090,000 and 358 FTE. 

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 358 $267,090

Changes to Base:

Maintaining Current Levels $1,354

Pay Annualization 332

Pay Inflation Adjustment 1,022

Subtotal Changes to Base $1,354

Total FY 2009 Base - Current Services 358 $268,444

Program Changes:

Program Decreases: (25) ($45,780)

(25) (45,780)

(25) ($45,780)

Business System Modernization

Subtotal FY 2009 Program Changes

Total FY 2009 Request 333 $222,664

IRS-92 
2.2 – Operating Levels Table 

Dollars in Thousands 

Appropriation Title: Business Systems

Modernization FY 2007 

Enacted

FY 2008

President's 

Budget

Cong. 

Action 

including 

Rescission

FY 2008 

Enacted 

Level 

FY 2009

Requested

Level

FTE 317 317 41 358 333

Object Classification:

11.1 Full-Time Permanent Positions............................ $34,504 $35,166 $624 $35,790 $33,621

11.3 Other than Full-Time Permanent Positions......... 447 475 270 745 766

11.5 Other Personnel Compensation.......................... 626 658 (99)

(1,957)

559 575

11.8 Special Personal Services Payments................. 00000

11.9 Personnel Compensation (Total)................... $35,577 $36,299 $795 $37,094 $34,962

12.0 Personnel Benefits................................................ 9,772 10,108 8,151 8,444

13.0 Benefits to Former Personnel.............................. 00000

21.0 Travel...................................................................... 0 187 0 0

22.0 Transportation of Things......................................

(187)

. 00000

23.1 Rental Payments to GSA...................................... 00000

23.2 Rent Payments to Others...................................... 00000

23.3 Communications, Utilities, & Misc........................ 00000

24.0 Printing and Reproduction.................................... 00000

25.1 Advisory & Assistance Services........................... 00000

25.2 Other Services....................................................... 165,924 171,753 157,914 115,327

25.3 Purchase of Goods/Serv. from Govt. Accts......

(13,839)

... 00000

25.4 Operation & Maintenance of Facilities................. 00000

25.5 Research & Development Contracts................... 00000

25.6 Medical Care......................................................... 00000

25.7 Operation & Maintenance of Equipment............. 571 7,095 186 7,281 7,281

25.8 Subsistence & Support of Persons...................... 00000

26.0 Supplies and Materials......................................... 00000

31.0 Equipment.............................................................. 815 56,648 2 56,650 56,650

32.0 Lands and Structures........................................... 00000

33.0 Investments & Loans............................................. 00000

41.0 Grants, Subsidies.................................................. 00000

42.0 Insurance Claims & Indemn................................. 00000

43.0 Interest and Dividends................................. 00000

44.0 Refunds.................................................................. 00000

91.0 Unvouchered.............................................. 00000

Total Budget Authority....................................... $212,659 $282,090 $267,090 $222,664

Budget Activities:

IT Investments................................................... $212,659 $282,090 $267,090 $222,664

Total Budget Authority....................................... $212,659 $282,090 $267,090 $222,664

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

($15,000)

(15,000)

($15,000)

IRS-93 
2.3 – Appropriation Detail Table 

Dollars in Thousands 

Business Systems Modernization

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Business Systems Modernization 353 $158,758 317 $212,659 358 $267,090 333 $222,664 -6.98% -16.63%

Subtotal New Appropriated Resources 353 $158,758 317 $212,659 358 $267,090 333 $222,664 -6.98% -16.63%

Other Resources:

Recoveries 2,523 2,523

Offsetting Collections - Reimbursable

Available multi-year/no-year funds 102,516 102,516 103,822 96,039 0.00% -7.50%

50% Carryover

Transfers In/Out

Mandatory Appropriations - User Fees

Subtotal Other Resources 0 $105,039 0 $105,039 0 $103,822 0 $96,039 0.00% -7.50%

Total Resources Available for Obligation 353 $263,797 317 $317,698 358 $370,912 333 $318,703 -6.98% -14.08%

FY 2008

Resources Available for Obligation

FY 2007 FY 2007 FY 2008 FY 2009

Enacted 1 Obligations Enacted Request to FY 2009

% Change

3A – Business Systems Modernization ($222,664,000 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. 

BSM management provides executive direction over the program. The BSM program 

develops the vision and strategy, manages the release of projects, and provides enterprise 

architecture support. The program ensures that all the integrated components of both 

technical and business modernization will provide a total business solution. This 

program will meet the needs of both taxpayers and internal users by providing business 

processes, enabled by IT, that permit timely and accurate delivery of tax account and 

other tax-related information while ensuring security and privacy. 

BSM projects are developed and funded on a useable-segment basis. Each request for 

project funding covers an identifiable portion of the project’s development. As 

completed BSM projects demonstrate successful operation, their costs are then funded 

from the Operations Support appropriation. 

Business Systems Modernization +$222,664,000 / +333 FTE

Recognizing the long-term commitment in IT needed to meet the IRS mission, Congress 

and the IRS designed the BSM program to develop and implement systems equal to those 

achieved through private and public sector best practices, while managing the risks 

inherent in one of the largest, most visible, and sensitive modernization programs 

underway. The IRS technology environment is extremely challenging and is 

characterized by exceptionally high processing volumes, widely varying inputs from

taxpayers (from simple records with just a few fields to complex documents of many 

IRS-94 
megabytes), seasonal processing with great variations in processing load, and transaction 

rates of billions per year with storage measured in trillions of bytes. 

The benefits accruing from delivery and implementation of BSM projects provide value 

to taxpayers, the business community, and government. Many of these benefits 

contribute to operational improvements and efficiencies within the IRS. The BSM 

program has made sustained progress in realizing substantial segments of the 

modernization vision - a key component in the strategy to reduce the tax gap. The 

program will continue in this direction as the projects are incrementally developed and 

deployed. 

BSM funding by project is shown in the chart below. 

FY 2009 BSM Project Activities 

Dollars in Thousands 

Project Activities

FY 2007 

Enacted

FY 2008

Enacted

FY 2009

Budget

Customer

Account Data

Engine

Release content master plan, including a mid-year release to

add new functionality and January release adding tax law

changes.

$58,500 $58,500 $58,800

Accounts 

Management

Services

Provides a Common User Interface for access and update of

taxpayer accounts managed by CADE Systems and

IMF/CFOL/IDRS.

0 28,983 26,158

Modernized

e-File

Continue development of Forms 1040 Phase II by delivering 

90 forms and schedules associated with Form 1040. 20,000 55,802 25,000

Filing &

Payment

Compliance

The Filing & Payment Compliance project plans no further

releases. 3,500 0 0

43,500 39,150 32,000

39,500 35,100 35,000

2,310 4,310 2,300

$167,310 $221,845 $179,258

45,000 44,000 42,052

$212,310 $265,845 $221,310

349 1,245 1,354

$212,659 $267,090 $222,664

Maintaining Current Levels

Total BSM Budget Request

Subtotal Program Request

Management Reserve

Core Infrastructure

 Architecture, Integration, and Management

Subtotal Capital Investments

BSM Labor

Customer Account Data Engine (CADE) - $58.8 million 

CADE is the lynchpin IRS modernization project to replace the antiquated master file. 

These master files are based on flat files with weekly updates achieved by batch 

processing of a sequential file repository, taking two weeks to update taxpayer tax 

accounts. This batch process compares poorly to the real-time updates provided by all 

other financial institutions. The delay in updating data allows data inconsistencies to 

develop among the various applications in use across the IRS. These inconsistencies 

prevent IRS employees from being able to resolve many taxpayer issues on the first 

attempt, which increases taxpayer burden. By providing daily or real-time updates to 

taxpayer accounts, CADE will enable the Accounts Management Services (AMS) project 

to provide real-time access to taxpayer account information containing current data. 

IRS-95 
CADE processed more than 11 million returns for Filing Season 2007 on a modernized 

and secure platform, including numerous schedules and forms such as Form 1040, U.S.

Individual Income Tax Return, Form 1040-EZ, Income Tax Return for Single Filers and 

Joint Filers with No Dependent, and Form 1040-A, U.S. Individual Income Tax Return;. 

In addition, CADE issued over $11 billion in refunds. As CADE moves the IRS towards 

its long-term IT modernization vision, it plays a significant role in providing the 

technology to facilitate quick access to compliance data. Access to this data is a critical 

component in the effort to close the tax gap. The IRS intends to continue providing 

better tools to improve compliance though early detection, better case selection, and 

better case management. In this regard, CADE serves as the foundation of IRS 

modernization. 

In 2009, the IRS plans to continue the development of CADE in stages. CADE will 

continue development by improving the infrastructure to allow continuous processing and 

transaction based recovery, and by adding an interface to the Integrated Data Retrieval 

System to provide new opportunities for business functionality. When fully operational, 

the CADE database will house tax returns information for more than 200 million 

individual and business taxpayers. 

Accounts Management Services (AMS) - $26.2 million 

The IRS will continue the development and deployment of the AMS project. The ability 

to provide immediate access to integrated account data, enable real-time transaction 

processing, and settle accounts on a daily basis is critical to improving customer service 

and business results. Realizing these capabilities requires implementing tools that allow 

retention of taxpayer accounts in the modernized CADE database through on-line access, 

monitoring, and adjustment. 

In FY 2009, IRS plans to add AMS release functionality to convert the Desktop 

Integration inventories to the Document Management Framework and increase the 

number of cross-functional capabilities with CADE. It will also create a modernized user 

interface for inputting agreements on CADE and/or Current Processing Environment 

accounts with decision support capability. AMS will develop the functionality to 

increase the business value by improving accuracy and efficiency with penalty 

abatement, balance due processing, and notice review capabilities to retain more accounts 

in CADE. 

When completed, AMS will provide the data presentation services to display and validate 

changes to update taxpayer accounts. AMS will store and manage IRS activities such as 

work assignments, transfers, case closures, and the generation of letters to taxpayers. 

AMS will provide the front-end applications for adjustments, penalties, interest, 

abatements, credit and debit transfers, name and address changes, bankruptcies, 

installment agreements, changes to the automated treatment streams, and many other 

taxpayer account-related functions required for customer service and compliance. AMS 

will provide applications that monitor taxpayer accounts for follow-up activity or 

deferred actions. 

IRS-96 
Modernized e-File (MeF) - $25 million 

The MeF project provides a standard filing structure for all IRS return types, a robust 

platform that can meet performance and capacity needs with enhanced and up-to-date 

technologies, and a greater appeal to external customers and stakeholders. With MeF, the 

IRS will store all tax return data in XML format in a modernized Tax Return Database

(MTRDB) allowing authorized viewers of the data to see the entire tax return online over 

the Internet. Once fully implemented, all tax returns and transmission files will adhere to 

the formal IRS rules (schemas). MeF initially covered Form 1120, U.S. Corporation 

Income Tax Return; Form 1120-S, U.S. Income Tax Return for an S corporation; and 

Form 990, Return of Organization Exempt from Income Tax. In January 2007, the IRS 

also brought Form 1065, U.S. Return of Partnership Income, onto the modernized 

platform. Plans call for implementing Form 1040; Form 1041, U.S. Income Tax Return 

for Estates and Trusts; and the family of Forms 94X, Employment/Unemployment Tax, to 

the MeF environment. In January 2008, MeF Release 5 added the Foreign Tax Return 

(1120F) and the Non-Profit e-Postcard (990N). The 990N was a late addition to Release 

5 and was the result of an e-file mandate contained in the Pension Protection Act passed 

in August 2006. A capacity and performance model and a series of engineering 

enhancement recommendations were also developed during Release 5. 

In FY 2007, the IRS started development of Release 6 (1040 Phase I). Release 6 will 

include Form 1040 and 10 other schedules and supporting forms, including Schedule A, 

Itemized Deductions; Schedule B, Interest and Ordinary Dividends; and Schedule D, 

Capital Gains and Losses, as well as deliver the base infrastructure and all 1040 

interfaces. Release 6 will go into production in 2009 and reach 61 percent of the 

individual e-File population, or approximately 55.1 million filers. 

In FY 2009, the IRS will continue development of Release 7 (1040 Phase II) which 

initiated development in FY 2008. Release 7 will roll out an additional 90 supporting 

schedules and forms that will expand the reach of MeF to 99 percent of the e-File 

population, or approximately 93.7 million filers. 

Core Infrastructure - $32.0 million

Core infrastructure provides critical services in architecture, engineering, and deployment 

of a standardized, consolidated, virtualized, and secure modernized production 

environment for use by major and non-major projects. The continued development and 

management of this infrastructure aligns with the IRS Modernization Vision & Strategy 

(MV&S) by incorporating the identification and development of common infrastructure, 

security, and application integration services for use and re-use by major and non-major 

projects. By leveraging this shared infrastructure, projects can speed time to delivery and 

reduce application development and maintenance costs. 

A significant portion of the IRS technology infrastructure supporting the core tax 

processing systems is composed of incompatible mainframe computers, mid-range 

systems, multiple workstation configurations, and insufficient security controls. Most of

these systems are incompatible due to dissimilar operating systems, hardware 

configurations, software configurations, and business applications. Stand-alone networks 

IRS-97 
further complicate access to these systems, especially by IRS employees who need to use 

several systems to perform their jobs – including resolving taxpayers’ problems. The 

nature of the IRS legacy infrastructure requires significant time and money to manage, 

maintain, and update these systems and networks. While the IRS has done much to 

improve and modernize this infrastructure, more work is needed. Once modernized, the 

environment needs to be continually refreshed as new technologies become available to 

support the business needs of the IRS and improve compliance to reduce the tax gap. 

Infrastructure Shared Services

Resources will deliver fully-integrated shared IT development and production 

infrastructure, which includes hardware, software, shared applications, data, 

telecommunications, security, and an enterprise approach to systems and operations 

management. These funds support the identification and management of project-related 

infrastructure requirements and the engineering and acquisition of all components, 

hardware, and software, needed for the development, test, and production environments. 

Technical guidance and direction is provided to all projects, along with a level of support 

services, which enables all projects to use the common integrated and shared 

infrastructure. This approach results in overall reductions in time and dollars to develop, 

deploy, and maintain the infrastructure and business applications that use the 

infrastructure. 

Core infrastructure activities include the continued management of, and enhancements to, 

the development, integration, and test environment for the applications using the 

modernized environment. This approach allows the IRS to develop infrastructure and 

common service solutions usable across multiple projects, extending into the legacy 

environments. By leveraging this shared infrastructure, projects can speed time to 

delivery and reduce application development and maintenance costs, as well as eliminate 

unnecessary duplicative capabilities.

IRS will further develop and enhance the shared enterprise infrastructure services in 

support of the increased number of major and non-major projects requiring use of the 

modernized infrastructure in support of business requirements. Integral to the success of 

these projects is the need to provide core infrastructure engineering services in capacity 

planning and performance engineering, as well as in implementing performance 

monitoring tools and processes to ensure availability and reliability of IRS systems and 

applications, to include use of IRS portals and access to needed services and data. This 

increase is necessary to support the identification, engineering, and development of 

additional infrastructure, security, and application services for planned re-use by 

Modernization Vision & Strategy (MV&S) projects in support of a Service Oriented 

Architecture (SOA). 

IRS-98 
Development, Integration, Testing (DITE)

Funding will support a number of projects that utilize the DITE to help address 

development, integration and testing needs; maintain Federal Information Security 

Management Act compliance using updated security monitoring tools; and provide a 

virtualized environment for remote application developers. DITE is a standardized 

development and test environment comprised of all of the modernized infrastructure 

components and applications that are needed by projects planning to use and integrate 

into the modernized production environment. DITE uses streamlined processes and 

standard tools that enable thorough development and testing in a controlled environment 

ensuring that projects work effectively and seamlessly within the modernized production 

environment. Its primary components are a Virtual Development Environment (VDE) 

and an Enterprise Integration and Test Environment (EITE). The VDE provides a 

software development environment, enabling geographically distributed developers 

access to standardized tools, information, and services in support of the modernization 

projects. The EITE provides a more structured, production-like, comprehensive 

environment to support integration and testing of projects before deployment into 

production. 

Architecture, Integration & Management (AI&M) - $35.0 million 

AI&M provides management operations essential to delivering a program of the 

magnitude, nature, and complexity of BSM. To date, overall financial performance 

continues to demonstrate successful, sound, and sustainable BSM financial management 

discipline. Each primary AI&M component performs a different and critical role. Major 

AI&M components are: 

• Architecture & Integration (A&I): Ensures system solutions meet business 

needs and provides a single authoritative source of guidance for effectively 

integrating each project as it moves from the development environment to the 

business environment. A recurring theme for activities in this area is to develop 

management processes in a manner that facilitates their extension and adoption 

into non-major projects. 

• Business Integration (BI): Ensures BSM services are aligned with each IRS 

operating unit’s vision and enable projects to deliver desired business results. BI 

activities include the following areas: Modernization Vision and Strategy, 

Demand Management, Cost Estimation, Transition Management, Business Rules 

and Requirements Management, and Budget Management. BI delivers enterprisewide processes and standards that enable the IRS to define, manage, and 

successfully deliver its IT portfolio. 

• Management Processes (MP): 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 and compliance 

IRS-99 
with program oversight requirements. The dynamic nature of modernization 

drives BSM to continually assess its operation and implement improvements. 

• Program Management (PM): Provides a single point of accountability for 

contractor activities. BSM PM operations will continue to focus on sustaining 

improvements to program performance, improving management process 

disciplines, and ensuring delivery of taxpayer benefit. In terms of program 

performance, the emphasis is on delivery of projects on time, on budget, and at or 

above quality targets. BSM PM will also continue to work to eliminate barriers to 

effective competition of business solutions. PM activities include four main 

areas: Program Executive Management, Business Services, Contracts and 

Procurement, and Document Management. 

• Federally Funded Research & Development Center (FFRDC): Provides 

national experts in systems engineering, architectural design and development, IT, 

security, and other technical disciplines that are critical to modernization success. 

FFRDC’s broad visibility, deep domain knowledge, and objectivity allow it to 

provide an independent voice to executive management staff and is widely 

viewed as a source of management guidance on difficult issues. 

BSM Labor - $43.4 million 

Of the $43.4 million, $42 million is for BSM labor and $1.4 million is for labor inflation 

adjustments. These funds provide for government labor costs associated with the 

development of the BSM projects. 

Management Reserve - $2.3 million 

Funds will be used to cover unanticipated cost adjustments for the BSM projects. 

IRS-100 
3.2.9 – Budget and Performance Plan 

Dollars in Thousands 

Business Systems Modernization

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted 1 Enacted Request

Appropriated Resources $113,702 $158,758 $212,659 $267,090 $222,664

Reimbursable Resources 0 0 0 0 0

Mandatory Appropriations - User Fees 0 0 0 0 0

Total Resources $113,702 $158,758 $212,659 $267,090 $222,664

Business Systems Modernization Budget Activity FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measure Actual Actual Actual Target Target Target

N/A * * 10.0% 10.0% 10.0%

N/A * * 10.0% 10.0% 10.0%

* Cost and Schedule variance is based on +/- 10% and is reported on major project segments.

BSM Project Schedule Variance by Release/Subrelease E

BSM ProjectCost Variance by Release/Subrelease E

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

Description of Performance 

Increased reliance on technology and its impact on business processes and the ability to 

maintain a talented workforce are positively changing how IRS employees conduct 

business and deliver services. For FY 2007, 92 percent of the major project segments 

were within the target of +/- 10 percent cost variance, and 77 percent of the major project 

segments were within the +/- 10 percent schedule variance. 

The IRS has made progress in meeting project deliverables and has continued to build 

foundational processes, controls and governance that are essential to continued success in 

managing the complex system development efforts. In FY 2007, the IRS implemented a 

tiered, enterprise-wide governance model for its IT investment projects. The new 

governance structure incorporates variance and risk thresholds and effectively promotes 

portfolio management, control, and accountability. 

The IRS also expanded the scope of its five-year IT Modernization Vision & Strategy 

that addresses priorities for modernizing front-line tax administration functions to include 

domains for security and internal management portfolios in order to put in place the 

capability for future enhancements. The strategy guides IT investment decision-making 

for FY 2007. Important aspects include: establishing partnerships among IT and 

business leadership; leveraging existing systems; emphasizing the delivery of smaller, 

incremental releases; and unifying the portfolio-level view of investments. 

IRS-101 
Significant modernization accomplishments for FY 2007 include: 

• Processed over 11 million returns and issue refunds of $11.6 billion in the 

Customer Account Date Engine (CADE), including filing season changes and 

capabilities to handle the Telephone Excise Tax Refund and the 1040 schedules. 

• Delivered Modernized e-File (MeF) Release 4.0, which enhanced electronic filing 

capabilities for Partnership Returns (Forms 1065, U.S. Return of Partnership 

Income, and 1065-B, U.S. Return of Income for Electing Large Partnership) and 

made all required extender legislation changes, meeting the mandate for taxpayers 

with 100 or more partners to file electronically. MeF received over two million 

corporate, non-profit, and partnership forms. 

• Delivered Filing & Payment Compliance Release 1.2, which transferred over 

51,000 cases to Private Debt Collectors, resulting in the collection of more than 

$31 million.

• Deployed the first two releases of the Accounts Management Services (AMS) 

system which is designed to enable authorized users to resolve taxpayer issues by 

accessing integrated account data. AMS builds the applications and databases 

that enable IRS employees to use the data in CADE to facilitate faster, more 

accurate issue resolution and results in quick and accurate access to authoritative 

account information in response to customer inquiries. AMS delivered 

functionality to provide daily rather than weekly updates to the authoritative 

account and began the Domain Architecture to describe the business vision and 

supporting conceptual technical architecture that will drive AMS releases for the 

next five years. 

In addition to the key modernization projects, several initiatives and improvements were 

undertaken in 2007 to effectively integrate the systems with the legacy production 

environment and improve the technology infrastructure. New and improved processes 

were also put in place to better integrate business and technology strategies and allow the 

IRS to operate more efficiently with improved productivity. The IRS: 

• Institutionalized the use of Enterprise Architecture into the Modernization Vision 

& Strategy process (and received the prestigious E-Gov award as the Best

Civilian Agency to use Enterprise Architecture for Government Business 

Transformation). 

• Completed the Enterprise Service Oriented Architecture strategy and established 

the process to identify Enterprise Common Services in order to achieve operation 

excellence and cost savings. 

• Delivered high-priority portal platform improvements and stabilized operations to 

meet near term needs for the 2007/2008 filing seasons for tax practitioners and 

internal IRS users. 

• Integrated the Enterprise Application Integration Broker into the core 

infrastructure to enable the use of common services to leverage data and 

applications between legacy and modernized environments. 

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• Expanded the Infrastructure Center of Excellence to include configuration 

management, measurement and analysis, capacity planning and performance 

engineering, and project monitoring and control. 

Tax administration in the 21st century requires improved IT solutions for the IRS. For 

FY 2008 and FY 2009, the IRS is committed to continuing to make improvements in 

technology by: 

• Replacing antiquated core account management systems and technology; 

• Expanding and enhancing compliance activities through early detection, better 

case selection, and better case management; 

• Delivering effective customer service, including expanded e-file systems and web 

services at reduced cost; and 

• Investing in infrastructure necessary to perform operations more efficiently, thus 

freeing up resources for enforcement and taxpayer service programs. 

As the IRS continues to upgrade and modernize its IT infrastructure and systems in 

FY 2009, it will reduce taxpayer burden by increasing and improving services offered to 

taxpayers and delivering the taxpayer service and enforcement programs more effectively 

and efficiently. 

IRS-103 
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 insurance tax credit included in P.L. 107-210, the Trade Adjustment Assistance 

Act (Trade Act of 2002). 

Currently, the IRS administers specific components of this credit: enrollment, payment, 

and compliance. The Department of Labor, state workforce agencies, and the Pension

Benefit Guaranty Corporation (PBGC) are responsible for determining potentially 

eligible HCTC taxpayers. 

The HITCA Budget request for FY 2009 is $15,406,000 in direct appropriation and 

16 FTE. This is an increase of $171,000 or 1.1 percent, and a decrease of 1 FTE, over the 

FY 2008 enacted level of $15,235,000 and 17 FTE. 

2.1 – Budget Adjustments Table 

Dollars in Thousands 

FTE $000

FY 2008 Enacted 17 $15,235

Changes to Base:

Maintaining Current Levels $322

Pay Annualization 20

Pay Inflation Adjustment 53

Non-Pay Inflation Adjustment 249

Efficiencies/Savings (1) ($151)

(1) (151)

(1)

Efficiency Savings

Subtotal Changes to Base $171

Total FY 2009 Base - Current Services 16 $15,406

Program Changes:

Subtotal FY 2009 Program Changes

Total FY 2009 Request 16 $15,406

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2.2 – Operating Levels Table 

Dollars in Thousands 

Appropriation Title: Health Insurance Tax Credit

Administration FY 2007 

Enacted

FY 2008

President's 

Budget

Cong. 

Action 

including 

Rescission

FY 2008 

Enacted 

Level 

FY 2009

Requested

Level

FTE 17 17 0 17 17

Object Classification:

11.1 Full-Time Permanent Positions............................ $2,312 $2,395 $0 $2,395 $2,335

11.3 Other than Full-Time Permanent Positions......... 00000

11.5 Other Personnel Compensation.......................... 22 23 0 23 2

11.8 Special Personal Services Payments................. 00000

11.9 Personnel Compensation (Total)................... $2,334 $2,418 $0 $2,418 $2,359

12.0 Personnel Benefits................................................ 358 371 0 371 352

13.0 Benefits to Former Personnel.............................. 00000

21.0 Travel.....................................................................

4

. 144 148 0 148 150

22.0 Transportation of Things....................................... 00000

23.1 Rental Payments to GSA...................................... 192 198 0 198 202

23.2 Rent Payments to Others...................................... 00000

23.3 Communications, Utilities, & Misc........................ 40000

24.0 Printing and Reproduction.................................... 50000

25.1 Advisory & Assistance Services........................... 00000

25.2 Other Services....................................................... 11,812 12,093 0 12,093 12,335

25.3 Purchase of Goods/Serv. from Govt. Accts......... 00000

25.4 Operation & Maintenance of Facilities................. 00000

25.5 Research & Development Contracts................... 00000

25.6 Medical Care......................................................... 00000

25.7 Operation & Maintenance of Equipment............. 00000

25.8 Subsistence & Support of Persons...................... 00000

26.0 Supplies and Materials......................................... 77078

31.0 Equipment.............................................................. 00000

32.0 Lands and Structures........................................... 00000

33.0 Investments & Loans............................................. 00000

41.0 Grants, Subsidies.................................................. 00000

42.0 Insurance Claims & Indemn................................. 00000

43.0 Interest and Dividends................................. 00000

44.0 Refunds.................................................................. 00000

91.0 Unvouchered.............................................. 00000

Total Budget Authority....................................... $14,856 $15,235 $0 $15,235 $15,406

Budget Activities:

Health Insurance Tax Credit Administration............... $14,856 $15,235 $15,235 $15,406

Total Budget Authority....................................... $14,856 $15,235 $0 $15,235 $15,406

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

1

IRS-105 
2.3 – Appropriation Detail Table 

Dollars in Thousands 

Health Insurance Tax Credit Administration

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Health Insurance Tax Credit Administration 10 $14,850 17 $14,856 17 $15,235 16 $15,406 -5.88% 1.12%

Subtotal New Appropriated Resources 10 $14,850 17 $14,856 17 $15,235 16 $15,406 -5.88% 1.12%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable

Available multi-year/no-year funds

50% Carryover

Transfers In/Out

Mandatory Appropriations - User Fees

Subtotal Other Resources 0 $0 0 $0 0 $0 0 $0 0.00% 0.00%

Total Resources Available for Obligation 10 $14,850 17 $14,856 17 $15,235 16 $15,406 -5.88% 1.12%

% Change

Obligations Enacted to FY 2009

FY 2008

Resources Available for Obligation

FY 2007 FY 2007 FY 2008 FY 2009

Enacted 1 Request

3A – Health Insurance Tax Credit Administration ($15,406,000 in direct 

appropriation): The HITCA budget activity funds costs to administer a refundable tax 

credit for health insurance to qualified individuals. 

The Trade Act of 2002 created a tax credit for the purchase of certain types of health 

insurance coverage for eligible taxpayers. The credit was created to help displaced 

workers and retirees who have lost their jobs due to trade with countries who participate 

in the North American Free Trade Agreement. The credit pays for 65 percent of the 

health insurance premiums for eligible workers. The IRS responsibility relating to the 

health care tax credit (HCTC) is to ensure participating eligible taxpayers receive the 

credit to which they are entitled. 

The Trade Act of 2002 required the IRS to develop and operate a system to provide an 

advance, refundable tax credit for certain individuals who receive a trade readjustment 

allowance or benefit from the Pension Benefit Guaranty Corporation (PBGC). This

activity maintains the administrative and direct support for the HITCA program office 

and the staff charged with administering the program for the IRS. 

IRS-106 
3.2.10 – Budget and Performance Plan 

Dollars in Thousands 

Health Insurance Tax Credit Administration

FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Resource Level Obligations Obligations Enacted 1 Enacted Request

Appropriated Resources $19,993 $14,850 $14,856 $15,235 $15,406

Reimbursable Resources 0 0 0 0 0

Mandatory Appropriations - User Fees 0 0 0 0 0

Total Resources $19,993 $14,850 $14,856 $15,235 $15,406

Health Insurance Tax Credit Administration Budget Activity FY 2005 FY 2006 FY 2007 FY 2007 FY 2008 FY 2009

Measure Actual Actual Actual Target Target Target

N/A $13.71 $14.90 $14.25 $14.25 $14.25

Sign-up Time (days) - Customer Engagement 98.1 98.7 93.3 97.0 97.0 97.0

Cost per Taxpayer Served ($)

1 FY 2007 Enacted represents the approved FY 2007 Operating Plan.

Description of Performance 

The Department of Labor, state workforce agencies, and the PBGC are responsible for 

determining potentially eligible HCTC taxpayers. The IRS administers the HCTC by 

working with health plan administrators to arrange direct payment of health plan 

premiums. 

In FY 2007, the IRS processed approximately 8.6 million HCTC eligibility records, made 

nearly 175,000 HCTC payments on behalf of taxpayers, handled almost 100,000 inbound 

HCTC telephone calls, and mailed over 400,000 pieces of outbound correspondence. In 

addition, the IRS maintained a HCTC program customer satisfaction level of 90 percent. 

The FY 2007 cost per participant served was $14.90, which was higher than the year-end 

target of $14.25 due to a recent large print order. In addition, the sign-up time was 

93.3 days, which was 4 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). 

The IRS also implemented new business processes to generate efficiencies, improve call 

handle time, and automate manual processes. In addition, the IRS completed a 

comprehensive study of enrollment time, a critical factor in determining access to the 

credit by potential enrollees, and continues to work with the Department of Labor to 

improve access to the credit. The IRS continues to look at ways to reduce the cost of

program administration beyond the 50 percent already achieved since the program was 

introduced in 2003. 

In future years, the IRS will maintain a balanced approach to administering the HITCA 

program by communicating program changes, encouraging eligible taxpayers to comply, 

and working closely with other Departments to ensure eligible individuals receive the 

HCTC. Current enrollment in the HCTC program has been stable at 15,000 to 16,000 

participants claiming the advance credit each month. 

IRS-107 
Section 4 – Supporting Materials 

4A – Human Capital Strategy Description 

Introduction

With over 94,000 employees located nationwide, the IRS is the largest bureau in the 

Department of the Treasury. Over 70 percent of the IRS budget funds human capital 

costs. The large seasonal workforce accounts for over 24 percent of the IRS employee 

population during peak workload seasons. 

The IRS is focusing on workforce retention and replenishment, leadership succession

planning, and competency gap assessment and resolution. To ensure strategic direction 

of human capital management, the IRS established four human capital strategic goals: 

Goal 1: Continually assess and shape the workforce to efficiently accomplish the 

 IRS mission 

Goal 2: Increase employee proficiency and engagement to enhance tax law 

 compliance 

Goal 3: Leverage human capital technology to reduce burden 

Goal 4: Enable quick and agile management action to achieve business goals 

The FY 2008 human capital priorities supporting these goals include: 

• Continued emphasis on customer service and satisfaction; 

• Timely communication and guidance; 

• Streamlining of processes; 

• Continual employee engagement to improve business results; and 

• Expanding the IRS look at technology. 

Recruitment 

The IRS continues to place significant focus on recruitment and hiring of mission-critical 

talent from both internal and external sources. The IRS planning and review process 

ensures evaluation of short- and long-term hiring goals and objectives to determine 

resource allocation and operational activities of the strategic recruitment and hiring office 

are on target. The IRS also has developed and implemented a multi-year recruitment and 

marketing plan to target a diverse applicant pool, coupled with a comprehensive 

assessment strategy to identify applicants with the knowledge, skills, and abilities 

necessary to meet the current and future needs of the business. In addition, the IRS 

continues to refine and implement corporate hiring goals and strategies. 

The IRS consistently emphasizes the need to review and improve its manager-toemployee span of control and to continue to redirect needed resources to front-line 

operations. The IRS also increased its use of workforce planning tools to develop a more 

robust link between business plans (e.g., examination plans) and workforce 

IRS-108 
replenishment. The IRS workforce plan and the resulting framework document outline 

the mechanism to incorporate the workforce strategy into the planning and budgeting 

processes. 

Retention 

The IRS is addressing the human capital impact of increasing employee retirements, 

workforce migrations within and outside the IRS, and other broad-based workforce 

issues. The number of IRS retirement eligible employees has grown over the past five 

years and is expected to continue to grow. Approximately 3 percent of IRS employees 

migrate to a new position each year and create competency gaps. This is particularly 

evident in the enforcement and compliance programs. 

Currently, 39 percent of IRS executives and 20 percent of other IRS managers are 

eligible for retirement and they are retiring at a higher rate than the non-management 

workforce. The IRS is identifying retention tools and working to establish consistent and 

objective standards for utility. Consistent monitoring and evaluating will ensure 

relevance to existing needs and objectives and ensure close linkage to IRS competency 

based workforce initiatives. 

Number of Number of Number of Number of

Employees Percent Employees Percent Employees Percent Employees Percent

2008 99 39.1% 1,845 23.0% 11,709 16.3% 13,653 17.1%

2009 27 10.7% 456 5.7% 3,139 4.4% 3,622 4.5%

2010 23 9.1% 450 5.6% 3,055 4.3% 3,528 4.4%

2011 8 3.2% 401 5.0% 3,104 4.3% 3,513 4.4%

2012 14 5.5% 404 5.0% 2,907 4.1% 3,325 4.2%

2013 and Beyond 82 32.4% 4,474 55.7% 47,716 66.6% 52,272 65.4%

Not Eligible * 1 0.0% 3 0.0% 4 0.0%

Total 253 100.0% 8,031 100.0% 71,633 100.0% 79,917 100.0%

* includes employees such as reemployed CSRS annuitants and "no code applies"employees.

Fiscal Year

Full-Time Permanent IRS Employees "On Board" and Eligible to Retire as of December 8, 2007

Executive Manager Other Total

The IRS-wide strategic approach to employee retention is a priority and will encompass 

on-going identification of skill sets and positions in need of retention effort and 

utilization of appropriate retention tools to ensure that the IRS is thought of as an 

employer of choice. 

IRS-109 
The Office of Personnel Management’s Strategic Management of Human Capital 

Areas

1. Strategic Alignment: To strategically and tactically meet human capital challenges, 

the IRS developed Human Capital Strategic and Implementation Plans to align human 

capital management with the agency’s mission. These plans set forth a clear line of 

sight between the achievement of the Treasury Human Capital Strategic Goals, the 

IRS Strategic Goals and its Human Capital Strategic Goals, the President’s 

Management Agenda, and the Human Capital Assessment and Accountability 

Framework. Specifically, the Human Capital Strategic Implementation Plan 

establishes measures for monitoring the IRS performance in achieving specific 

objectives, processes, and projects. 

The four Human Capital Strategic Goals are the foundation of the IRS Human Capital 

Strategy. This corporate approach for strategically managing human capital ensures 

that the IRS builds and maintains the workforce needed to carry out its mission in an 

efficient and effective manner therefore “Linking Human Achievement with Business 

Results.” 

The IRS workforce plan describes the effective management of all key IRS positions. 

Focusing on mission critical occupations, the plan will be used in the planning and 

budgeting cycle to align hiring levels with the IRS Human Capital Strategic and 

Implementation Plans. The IRS is well underway in the development of a Workforce 

Planning Framework for IRS-wide implementation. This framework will ensure the 

consistency in how the IRS acquires and manages needed talent. 

2. Leadership and Knowledge Management: The comprehensive corporate 

Leadership Succession Program of the IRS will promote the replenishment of talented

leaders as the IRS mitigates the anticipated impact of retirements, including training 

of current and potential leaders to ensure they possess the needed competencies. The 

cornerstone for this training is the establishment of an IRS Leadership Competency 

Model describing the behaviors required for leadership success in the IRS. The 

competencies are linked to IRS Managers’ Performance Plan Core Responsibilities 

and drive all aspects of IRS leadership selection, development, evaluation, and 

compensation. 

In the summer of 2007, the IRS launched an automated Leadership Succession 

Review (LSR) Process and Training Program that will enable the IRS to identify 

talent for leadership positions IRS-wide. LSR will detect gaps in leadership bench 

strengths for critical positions and target management training and development. 

The IRS is establishing best practices and using innovative approaches within its 

succession management program for the Senior Executive Service (SES) to identify, 

recruit, and develop talented leaders. These efforts are critical as the IRS faces an 

upcoming shortage of leaders due to the baby boomer retirement wave and increased 

competition for senior leadership talent from both the private and public sectors. As a 

result, the IRS is transitioning to a new streamlined method of identifying, selecting, 

and developing individuals for the SES. 

IRS-110 
3. Results-Oriented Performance Culture: One of the methods the IRS uses to link 

performance with compensation is paybanding. The IRS implemented pay-forperformance payband systems for its front-line managers, department managers, 

senior managers, and senior executives. Under the new payband systems, 

compensation is linked to performance. These performance-based increases replace 

the annual adjustments paid under the Federal General Schedule pay system. 

Program evaluations are underway to ensure a solid foundation in performance 

management and its critical linkage to pay. 

4. Talent Management: The IRS made significant strides in the identification of the 

competencies needed, both by its leadership and mission critical occupations, 

throughout the IRS. The identified competencies are used for recruitment, selection, 

and development purposes. Career path information is available online to employees 

to provide identification of the competencies needed to successfully qualify for, and 

perform in, the career of their choice. To further the IRS evaluation of its 

workforce’s competencies, the Competency Assessment Center (CAC) is provided as 

an online portal for employee assessments on various competencies. To date, IRS 

launched two assessments on Individual Taxpayer Advisory Specialists (formerly 

Taxpayer Resolution Representative) and Special Investigators through this portal. 

5. Accountability: The IRS Human Capital Strategic Accountability Framework 

encompasses the IRS Human Capital Strategic Plan, tactical Implementation Plan, 

Program Assessments, Delegated Examining Unit Reviews and Performance 

Indicators and Targets to monitor and ensure the accomplishment of long-range goals

and objectives. It also aligns with Treasury and the Office of Personnel 

Management's Presidential Management Agenda requirements. 

IRS-111 
4B – Information Technology (IT) Strategy 

Modernization Vision and Strategy (MV&S)

The IRS implemented an information technology (IT) investment strategy, known as the 

Modernization Vision & Strategy (MV&S), which identifies potential IRS IT investments 

in business domains directly related to front-line tax administration functions such as 

submission processing, managing taxpayer accounts, customer service, reporting 

compliance, filing and payment compliance, and criminal investigation. In addition, 

there are five crosscutting service domains – enterprise data, IT service management, 

security and privacy, IT human capital management, and common business services - that 

may be leveraged across both the technical and business domains to identify 

opportunities for projects across the business to use common solutions, platforms, data 

sources, and system components. 

The IRS regularly updates the MV&S to address both the full scope of tax administration 

functions and changing business priorities, including planning for the consolidation, 

retirement, and potential reuse of many legacy systems. The IRS has recently completed 

the third phase of the MV&S approach. 

During the first year of implementing the MV&S, the IRS focused on the business 

priorities needed to enhance and improve service and enforcement capabilities. IT also

introduced new investment decision support programs that included solution concept and 

project estimation services. By applying a more uniform, disciplined, and rigorous 

approach to the development of solutions concepts and project estimates, future 

investment decisions can be based on data that are more reliable and consistent. 

In the second year, the MV&S focused on expanding the business scope to include 

internal management and security and privacy domains. In addition, the service domains 

were further defined to address crosscutting technical opportunities, expand the common 

business services which identify opportunities, leverage services that support multiple 

domains and data, and focus on all aspects of data management. Technical domains also 

were introduced and high-level strategies were formulated. The technical domains are 

Applications Development; Enterprise Networks; Enterprise Services; End User 

Equipment and Services; and Enterprise Operations. These domains focus on the delivery 

of base products and services such as end-user support, networks, and storage. 

The IRS is entering the third year of the MV&S and the strategy will expand to represent 

and include all technology services and products delivered by the IRS. The technical and 

service domains will propose potential projects and initiatives using the solution concept 

and project estimation services in order to ensure discipline, consistency, and uniformity 

across all IT investments. New business domains, including functions that support tax 

administration such as the Taxpayer Advocate and Chief Counsel, will be added and will 

build upon the fundamental principle of domain strategies driving investments. The IRS 

will begin developing domain architectures for each of the major business areas in tax 

administration, thus providing a framework for diagnosing, analyzing, and solving 

specific business issues that result from common architecture misalignments. 

IRS-112 
In the long term, the MV&S will build out the domain architectures, improve the IT 

services and products, refine roles and responsibilities, and ultimately define a 

comprehensive IT investment portfolio that integrates budget formulation and execution. 

Information Technology Major IT Investment Portfolio

The IRS is submitting 33 IT investments for inclusion in the FY 2009 IT portfolio. All 

support the mission and strategic goals of the IRS. These investments will include 

routine system maintenance to sustain “steady state” capacities as well as larger-scale 

efforts to develop, modernize, or enhance IT system capabilities. Below are brief 

descriptions of some of the major investments (excluding the business modernization 

projects, which are described separately in the Business Systems Modernization section). 

• Automated Collection System (ACS) – ACS is a centralized production system

located at the Martinsburg Computing Center. ACS controls the Integrated Data 

Retrieval System (IDRS) balance due and nonfiler cases requiring telephone 

contact with the taxpayer for resolution. ACS uses case management abilities to 

contact taxpayers, review their case histories, and issue notices, liens, or levies to 

resolve the cases. Taxpayer contact is accomplished through telephone calls via 

Predictive Dialer and through correspondence to taxpayers and third parties. 

• Business Master File (BMF) and Employee Master File (EPMF) – These are 

the authoritative data stores for taxpayers’ accounts other than Individual Filers. 

The BMF contains the tax records of businesses, tax exempt organizations, 

estates, and gift tax filers. Accounts are updated, taxes are assessed, and refunds 

are generated as required each tax filing period. 

• Correspondence Examination Automated System (CEAS) – CEAS provides 

phases of unattended case processing for discretionary inventories, workload 

resolution, issue, document, and inventory management. The CEAS system will 

incrementally replace the Reports Generation Software applications for campus 

reporting compliance as the inventory management/report writing system for all 

campus examination work. 

• Correspondence Imaging System (CIS) – CIS improves the quality of customer 

service by providing on-line access to images of taxpayer correspondence. This 

will aid in the efficient resolution of subsequent telephone and written inquiries. 

CIS provides customer service representatives with an online ability to view, read, 

forward, save, retrieve, print, and manage incoming taxpayer inquiries. 

• Electronic Management System (EMS) – This is a “front-end” processing 

system that receives, validates, stores, and forwards taxpayer filings to the

mainframe Electronic Filing (ELF) systems and acknowledges electronic files 

containing tax documents. EMS is the IRS main processing system for electronic 

information exchanges between the IRS and external trading partners. 

IRS-113 
EMS receives sensitive but unclassified tax information, performs validation for 

each form type/format, provides a unique acknowledgement receipt, and rejects 

transmissions not meeting validation requirements. Valid transmission files are 

made available for subsequent retrieval and processing by the mainframe ELF 

systems. These subsequent systems return acknowledgement files to EMS. The 

acknowledgements are sent to taxpayers in the same format as originally 

transmitted.

• Enterprise Data Access Strategy (EDAS) - Formally referred to as the 

Enterprise Data Warehouse, the EDAS provides tax exempt and government 

entities customers with electronically filed business returns in a relational format 

while also giving the IRS a consolidated database of tax return and account data. 

By analyzing the data on EDAS, the IRS can implement initiatives to improve tax 

compliance in one area that does not lead to a decrease in compliance in another 

area, thereby affecting the IRS ability to reduce the tax gap.

• Integrated Customer Communications Environment (ICCE) – ICCE provides 

interactive services (applications) in support of taxpayers, practitioners, and 

employees through multiple contact channels, including telephones and the web. 

ICCE interactive services include Automated Self Service Applications that help 

resolve tax law, compliance, collections, and refund issues as well as other 

inquiries. Where automated assistance is insufficient or not desirable, ICCE 

interactive services gather information from taxpayers/practitioners to help route 

the contact to the best possible non-automated assistance. ICCE focuses on 

interactive services that require access to taxpayer account information. 

• Integrated Collection System (ICS) – ICS provides workload management, case 

assignment/tracking, inventory control, electronic mail, case analysis tools, and 

capabilities to support the Collection fieldwork. ICS is part of the IRS plan for 

overall automation of its activities. The objective of ICS is to deliver a computer 

system to automate many labor-intensive collection tasks. 

• Integrated Data Retrieval System (IDRS) – IDRS is an IRS mission-critical 

system consisting of databases and programs supporting IRS employees working 

active tax cases. IDRS manages data retrieved from the Tax Master Files 

allowing IRS employees to take specific actions on taxpayer account issues, track 

status, and post updates back to the Master Files. IDRS provides for systemic 

review of case status. 

• Interim Revenue Accounting Control System (IRACS) – IRACS records tax 

revenue owed to the federal government and maintains records of assessments, 

collections, accounts receivables, refunds, over-assessments, and other elements 

of revenue accounting. All data entry funds contain validity and consistency 

checks to help ensure that the integrity of the database is protected from invalid, 

unbalanced, and duplicate data. IRACS provides ongoing maintenance of data to 

support the daily operations including maintenance of the existing application, 

annual updates, and answering queries from IRS customers. 

IRS-114 
• Individual Master File (IMF) – This is the authoritative data store for taxpayers’ 

accounts of individuals and sole proprietorships. The IMF project maintains the 

IMF data. IMF accounts are updated, taxes are assessed, and refunds are 

generated as required each tax filing period. 

• Information Returns Processing (IRP) – IRP consist of a group of compliance 

projects providing data and support for the IRS to administer the U.S. tax system

efficiently and effectively. IRP processes more than one billion information 

documents each year and maintains a data store of more than eight billion 

information documents. IRP performs compliance analyses with these documents 

and Master File account data. IRP also provides data and analyses to business 

functions throughout the IRS, as well as external federal and state trading 

partners. 

• Integrated Submission and Remittance Processing (ISRP) – ISRP is a 

mission-critical mixed life cycle project that provides both individual and 

business taxpayers a method to file paper tax returns. ISRP provides a method to 

process remittances and provides for the processing of various forms at eight 

submissions processing sites throughout the country. As ISRP data entry 

operators enter the information from the various paper documents, it is converted 

into electronic data that are used by downstream operations such as financial 

information systems. The processing capacity and performance of ISRP supports 

the mandatory processing timeliness requirements imposed by Congress and other 

agencies for the processing of tax returns, providing the taxpayers their refunds 

and notices, as well as depositing the revenue. 

Additionally, ISRP provides remittance data, including check images, to the 

Remittance Transaction Research system for customer service representatives to 

search through electronically archived remittances. The performance gap in 

services offered by ISRP is reflected in the ability to process paper. 

Modernization partially replaces ISRP through electronic filing. The strategies 

resulting from Tax Administration Vision and Strategy eGOV are expected to 

replace ISRP fully by year 2012. Until that time, ISRP is needed to fill the gap. 

• Service Center Recognition/Image Processing System (SCRIPS) – SCRIPS is 

a data capture, management, and storage system that uses high speed scanning 

and digital imaging technology to process tax documents. The system does 

character recognition from the imaged documents and stores images of the returns 

for access from internal IRS organizations. The perfected data are sent 

downstream for processing on the IRS Mainframe systems and Master File 

storage. 

• Tax Return Database (TRDB) – The TRDB is a centralized corporate database

containing the data submitted by taxpayers on their federal tax returns. The 

TRDB receives the return data from a variety of electronic submission systems, 

including those filed using an authorized e-file provider, through an online filing 

company or via a federal/state program. 

IRS-115 
4.1 – Summary of IT Resources Table 

Dollars in Thousands 

Information Technology Investments

FY 2006 FY 2007 FY 2008 FY 2009

Major IT Investments / Funding Source

Budget

Activity

& Earlier 

Enacted Enacted Enacted Requested

Account Management Services (AMS) - Major

Information 

Technology

Investments 11.800 1.570 44.270 2719.7% 47.949 8.3%

IRS BSM 20-0921-0-1-803

Information

Technology

Investments 11.800 0.000 37.520 100.0% 37.660 0.4%

IRS Taxpayer Services 20-0912-0-1-803 0.000 0.000 0.000 0.0% 3.360 100.0%

IRS Operations Support 20-0919-0-1-803 Information

Services 0.000 1.570 6.750 329.9% 6.929 2.7%

Appeals Automation Environment (AAE) Information 

Services 25.531 13.243 13.741 3.8% 14.089 2.5%

Automated Collection System (ACS) - Major Information 

Services 8.674 4.843 4.613 -4.7% 4.723 2.4%

Business Master File Information 

Services 51.887 12.284 13.121 6.8% 13.464 2.6%

Common Services (Portal) Information 

Services 0.000 0.000 30.772 100.0% 34.132 10.9%

IRS BSM 20-0921-0-1-803

Information

Technology

Investments 0.000 0.000 0.000 0.0% 0.000 0.0%

IRS Taxpayer Services 20-0912-0-1-803 0.000 0.000 0.000 0.0% 3.360 100.0%

IRS Operations Support 20-0919-0-1-803 Information

Services 0.000 0.000 30.772 100.0% 30.772 0.0%

Computer Security Audit Trails - (CSAT) Information 

Services 0.000 0.000 0.000 0.0% 0.000 0.0%

Correspondence Examination Auto Support - Major

Wintel (CEASMW)

Information 

Services 0.000 7.473 5.530 -26.0% 6.418 16.1%

IRS Operations Support 20-0919-0-1-803 Information

Services 0.000 5.343 4.932 -7.7% 5.804 17.7%

IRS Operations Support (EITC) 20-09E9 0.000 2.130 0.598 -71.9% 0.614 2.7%

Correspondence Imaging System (CIS) - Release 2 -

Major

Information 

Services 10.626 10.297 6.937 -32.6% 7.090 2.2%

Counsel Automated Systems Environment (CASE) Information 

Services 27.036 28.498 27.501 -3.5% 28.150 2.4%

Criminal Investigation Management Information

System (CIMIS) - Major

Information 

Services 0.000 3.086 1.361 -55.9% 0.561 -58.8%

IRS Enforcement 20-0913-0-1-999 0.000 0.800 0.815 1.9% 0.561 -31.2%

IRS Operations Support 20-0919-0-1-803 0.000 2.286 0.546 -76.1% 0.000 -100.0%

Customer Account Data Engine (CADE)

Information 

Technology

Investments 448.979 122.380 80.158 -34.5% 80.722 0.7%

IRS BSM 20-0921-0-1-803

Information

Technology

Investments 396.179 112.877 68.000 -39.8% 68.300 0.4%

IRS Taxpayer Services 20-0912-0-1-803 8.665 2.230 2.320 4.0% 2.340 0.9%

IRS Operations Support 20-0919-0-1-803 Information

Services 44.135 7.273 9.838 35.3% 10.082 2.5%

e-Services Information 

Services 71.750 14.063 15.090 7.3% 15.407 2.1%

Electronic Fraud Detection System (EFDS) Information 

Services 197.026 11.325 12.374 9.3% 12.640 2.1%

IRS Operations Support 20-0919-0-1-803 Information

Services 134.096 7.825 8.874 13.4% 9.070 2.2%

IRS Operations Support (EITC) 20-09E9 62.930 3.500 3.500 0.0% 3.570 2.0%

Electronic Management System (EMS) Information 

Services 183.310 8.898 6.848 -23.0% 6.993 2.1%

End to End Publishing - Major Information 

Services 11.127 4.854 1.955 -59.7% 1.825 -6.6%

IRS Operations Support 20-0919-0-1-803 Information

Services 11.127 4.854 0.439 -91.0% 1.159 164.0%

IRS Taxpayer Services 20-0912-0-1-803 0.000 0.000 1.516 100.0% 0.666 -56.1%

Enterprise Data Access Strategy (EDAS) (Formerly:

Enterprise Data Warehouse)

Information 

Services 6.953 7.035 5.421 -22.9% 5.559 2.5%

IRS BSM 20-0921-0-1-803 0.000 0.000 0.000 0.0% 0.000 0.0%

IRS Operations Support 20-0919-0-1-803 6.953 7.035 5.421 -22.9% 5.559 2.5%

% Change 

from FY07 to

FY08

% Change 

from FY08 to

FY09

IRS-116 
Continuation – 4.1 – Summary of IT Resources Table 

Dollars in Thousands 

Examination Desktop Support System (EDSS) -

Release 2

Information 

Services 13.060 4.834 8.129 68.2% 8.078 -0.6%

IRS Enforcement 20-0913-0-1-999 0.000 0.000 2.664 100.0% 3.504 31.5%

IRS Operations Support 20-0919-0-1-803 Information

Services 13.060 4.834 5.465 13.1% 4.574 -16.3%

Excise Files Information Retrieval System (ExFIRS) -

Major

Information 

Services 0.000 0.471 0.000 -100.0% 0.000 0.0%

Exise Tax e-File & Compliance (ETEC) - Major All External

Funding 7.927 0.000 0.000 0.0% 0.000 0.0%

Filing and Payment Compliance (F&PC) (Blended)

Information 

Technology

Investments 93.267 19.342 5.709 -70.5% 5.834 2.2%

IRS BSM 20-0921-0-1-803

Information

Technology

Investments 80.536 19.342 0.000 -100.0% 0.000 0.0%

IRS Taxpayer Services 20-0912-0-1-803 0.662 0.000 0.240 100.0% 0.240 0.0%

IRS Operations Support 20-0919-0-1-803 Information

Services 12.069 0.000 5.469 100.0% 5.594 2.3%

Financial Management Information System (FMIS) Information 

Services 2.468 5.863 5.619 -4.2% 5.748 2.3%

Individual Master File (IMF) Information 

Services 37.637 12.603 11.869 -5.8% 12.172 2.6%

Information Returns Processing (IRP) Information 

Services 25.290 7.590 7.115 -6.3% 7.306 2.7%

Integrated Collection System (ICS) Information 

Services 16.588 8.872 7.745 -12.7% 7.945 2.6%

Integrated Customer Communications Environment

(ICCE)

Information 

Services 338.681 16.981 14.653 -13.7% 14.977 2.2%

Integrated Data Retrieval Systems (IDRS) Information 

Services 78.955 17.645 15.741 -10.8% 16.151 2.6%

Integrated Financial System/CORE Financial System

(IFS)

IRS Business 

Systems 

Modernization 269.308 16.552 15.123 -8.6% 15.435 2.1%

IRS BSM 20-0921-0-1-803

Information

Technology

Investments 0.000 0.000 0.000 0.0% 0.000 0.0%

IRS Taxpayer Services 20-0912-0-1-803 43.628 3.689 0.000 0.0% 0.000 0.0%

IRS Operations Support 20-0919-0-1-803 Information

Services 225.680 12.863 15.123 17.6% 15.435 2.1%

Integrated Submission and Remittance Processing

System (ISRP)

Information 

Services 30.325 16.555 16.774 1.3% 17.123 2.1%

Interim Revenue Accounting Control System (IRACS) -

BAC 99

Information 

Services 0.672 0.812 0.935 15.1% 3.774 303.6%

Modernized e-File (MeF)

Information 

Technology

Investments 259.086 58.650 86.049 46.7% 56.023 -34.9%

IRS BSM 20-0921-0-1-803

Information

Technology

Investments 212.788 45.420 61.300 35.0% 30.500 -50.2%

IRS Taxpayer Services 20-0912-0-1-803 0.000 0.460 7.360 1500.0% 7.534 2.4%

IRS Enforcement 20-0913-0-1-999 3.057 0.776 0.928 19.6% 0.677 -27.0%

IRS Operations Support 20-0919-0-1-803 Information

Services 43.241 11.994 16.461 37.2% 17.312 5.2%

Service Center Recognition/Image Processing System

(SCRIPS)

Information 

Services 42.365 16.951 15.539 -8.3% 15.862 2.1%

Tax Return Database (TRDB) - BAC 99 Information 

Services 22.367 4.836 4.039 -16.5% 4.141 2.5%

Travel Reimbursement and Accounting System

(TRAS) - BAC 99

Information 

Services 1.521 1.428 1.350 -5.5% 0.000 -100.0%

Subtotal, Major IT Investments 2,294.216 459.834 486.081 5.7% 470.291 -3.2%

Non-Major IT Investments 464.189 486.662 547.301 12.5% 564.893 3.2%

Infrastructure Investments 827.632 796.235 924.599 16.1% 948.875 2.6%

IRS/Data Center Systems and Services (Consol) Information

Services 247.191 323.021 431.237 33.5% 438.570 1.7%

IRS/Telecommunications Systems Services Information

Services 231.262 213.293 254.205 19.2% 265.059 4.3%

IRS/End User Systems and Services Information

Services 349.179 259.921 239.157 -8.0% 245.246 2.5%

Enterprise Architecture 4.242 4.391 4.654 6.0% 4.793 3.0%

Total IT Investments 3,590.279 1,747.122 1962.635 12.3% 1,988.852 1.3%

1

 The prior year resources for Electronic Federal Tax Payments (EFTPS) major projectmerged with Enrolled Practitioners Program System (EPPS) non major.

1

IRS-117 
4.2 – PART Evaluation Tables 

PART Name: Tax Collection 

Year PARTed: FY 2002 

Rating Results Not Demonstrated

This program collects tax debts from citizens and businesses. Agents contact taxpayers 

through notices, phone calls, and personal visits to secure payments. If necessary, 

collection agents can use liens, levies, or seizures, or refer delinquent taxpayers for 

criminal prosecution. 

OMB Major Findings/Recommendations 

1. IRS collection of unpaid taxes yields substantial revenue ($18 billion in 2001). 

However, IRS does not work enough collection cases with its current resources, work 

processes, and technology to ensure fair tax enforcement. Each year billions of dollars of 

unpaid taxes goes uncollected. 

2. IRS has been working to make management improvements in the last several years, 

including implementing good output measures. However, its financial management 

systems do not provide the information needed to make effective day-to-day management 

decisions. 

3. IRS has a strong planning process closely linked to its budget process. IRS is 

currently developing improved collection outcome measures and goals. 

Bureau Actions Planned or Underway 

1. Introduce risk-based approaches using reengineering and technology modernization 

efforts to target specific taxpayers with the most effective collection procedure (i.e., 

notice, phone call, or field visit). 

IRS is developing enhancements to the Inventory Delivery System that will provide 

better case routing to improve case selection, delivery, and treatment. Also, IRS is 

developing a plan to deploy a rules engine to simplify routing changes and flexibility in 

order to provide enhancements that ensure the right cases at the right time to the right 

treatment stream that is effective and increases collections and improves compliance. 

2. Legislation has been approved that allows IRS to hire private collection agency 

contractors (PCAs) to secure payment in some cases. The legislation includes strong 

taxpayer rights protections. The contractors will be paid from receipts based on actual 

collections. PCAs cannot accept direct payment or use enforcement tools available to

IRS (e.g. liens, levies and seizures). PCA employees are subject to the same taxpayer 

protection and privacy as the IRS. 

3. Improve Collection selection criteria and filters for balance due and nonfiler cases, 

including identifying and addressing potential high income nonfilers. 

New techniques were tested to route cases by source of assessment with results available 

IRS-118 
beginning in November 2008. If analysis of results is favorable, the Collection Inventory 

Delivery System will be updated with the routing routines. To address nonfilers, the IRS 

approved a Service-wide Nonfiler Strategy in July 2007 and established a Nonfiler 

Governance Council that will stand up in February 2008. The Council will build nonfiler 

workplans by August 2008. 

4. Improve program performance by implementing new tools in 2007 to segment 

collection workload according to risk to ensure IRS takes the right action to secure 

delinquent taxes. 

In May 2007, the Collection Governance Council agreed to the Collection Inventory 

(CACI) recommendations. New case routing rules are being tested to determine best 

routing for specific types of cases. In August 2007, IRS increased the threshold for cases 

assigned to the Automated Collection System (ACS) to $5,000 for cases with two or 

fewer modules. A new case coding routine was implemented to prioritize assignment to 

the field when real estate equity is greater than $50,000. In 2008, the IRS will continue

to test new treatments streams between ACS and field. 

IRS-119 
PART Name: Earned Income Tax Credit 

Year PARTed: FY 2002 

Rating Ineffective

This program administers the earned income tax credit (EITC), which rewards work and 

lifts families out of poverty. The program seeks to maximize participation of eligible 

taxpayers and reduce payments to ineligible taxpayers. 

OMB Major Findings/Recommendations 

1. The program has failed to reduce erroneous EITC 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. The magnitude of this 

error rate is the reason for the rating of “ineffective.” 

2. 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. 

3. 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 

1. IRS will require high-risk EITC applicants to pre-certify that the children claimed on 

their return 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). 

EITC overclaim estimates are currently measured through National Research Program

(NRP) study, which looks at prior year return information and economic modeling to 

account for tax law changes. Starting in 2009, the IRS new multi-year NRP studies with 

EITC-specific components will yield annual estimates of EITC error starting with TY

2006 and provide detailed information on areas of error. This new data point will allow 

for more directed compliance treatments than in the past. 

2. 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. 

IRS-120 
3. 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 will continue implementing its updated Concept of Operations (CONOPS), which 

outlines a holistic approach to address the various influences affecting EITC error rates

by return preparers. With the CONOPS’ main focus on paid preparers, IRS will continue 

identification, testing, analysis and implementation of preparer compliance treatments 

and outreach that affect behavior. 

IRS-121 
PART Name: Submission Processing 

Year PARTed: FY 2003 

Rating Moderately Effective 

This program processes 224 million tax returns and 1.5 billion information returns (such 

as bank reports on taxpayer’s interest income) each year and issues 109 million refunds. 

In 2005, more than half of individual tax returns were submitted electronically. 

OMB Major Findings/Recommendations 

1. 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 by 2007. Congress has not yet acted on the 

Administration’s proposals to accelerate the increase in electronic filing.

2. 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 1 percent 

error rate compared to 5 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. 

 

3. Based on the recently completed IRS 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 

1. Improve program performance by seeking legislative changes to promote electronic 

filing, including greater authority to require electronically filed returns. 

Although the Administration has continued its proposals to accelerate the increase in 

electronic filing, Congress has not yet acted on those proposals. At the current growth 

rate, the IRS projects the 80 percent electronic filing rate will be achieved in 2012. 

2. Improve performance by setting goals by 2007 for reduced taxpayer filing burden 

resulting from the time and expense of preparing and filing their returns. 

IRS and its contractor continue to work on a model of compliance burden among small 

business taxpayers. The small business study focuses on the burden that occurs in the 

pre-filing and filing periods and extends to burdens associated with not only the 

individual's tax return but also to employment and excise tax requirements. Preliminary 

estimates were released in FY 2007 and IRS intends to have the model in full production 

by the summer of 2008 and to publish burden estimates using the model late in 2008. An 

upcoming S-Corp burden reduction project in January 2008 will provide alternative 

methods of relief for those taxpayers who file late Forms 1120S (small business 

elections). The IRS also plans an Employment Tax Return project that involves the 

design of new forms by 2009 that will be used to correct employment tax reporting errors 

IRS-122 
or to claim refunds. The new forms are designed to reduce burden for taxpayers who 

need to correct their returns or claim refunds for overpayment. 

3. Improve program performance by using a single cost based efficiency measure by 

2008 (cost per return processed). 

The IRS has established an office responsible for developing a managerial cost 

accounting program and issued a service-wide cost policy in August 2007. At this time, 

managerial cost accounting is in its initial stages and actions are focused on identifying 

the systems and methodology to appropriately match cost and performance information. 

Until the objectives of the service-wide cost program have been clearly defined and 

determinations made on how costs will be accumulated at the bureau level, there are no

pending activities associated with developing cost-based measures for specific programs. 

Specific improvement actions will be more clearly defined in the future and this 

improvement action will be re-activated. 

4. 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 will finalize plans and costing estimates to modernize the submission processing

function. The vision of the future system, Modernized Submission Processing (MsP), 

will process Form 1040 tax returns, information returns, and miscellaneous documents 

(processed via the Service Center Recognition/Image Processing System-SCRIPS) 

submitted via paper, utilizing a state-of-the-art, efficient image and data extraction 

system using Optical Character Recognition technology to extract data electronically. 

With a phased approach, MsP will replace current paper processing to achieve the 

Submission Processing domain vision strategy. 

IRS-123 
PART Name: Taxpayer Service 

Year PARTed: FY 2004 

Rating Adequate

This program reduces taxpayer burden by providing assistance on tax law and account 

issues in a professional and courteous manner. In 2005, the IRS answered 59 million

calls, served 6.6 million taxpayers in walk-in offices, and had almost 116 million 

downloads from its forms, instructions and publications web site. 

OMB Major Findings/Recommendations 

1. 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. 

2. 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. 

3. 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 

1. Improve program performance by converting to cost based efficiency measures for the 

2008 budget (e.g., cost per call answered) and adding efficiency measures for service 

processes for management. 

The IRS has established an office responsible for developing a managerial cost 

accounting program and has issued a service-wide cost policy in August 2007. At this 

time, managerial cost accounting is in its initial stages and actions are focused on 

identifying the systems and methodology to appropriately match cost and performance 

information. Until the objectives of the service-wide cost program have been clearly 

defined and determinations made on how costs will be accumulated at the bureau level, 

there are no pending activities associated with developing cost based measures for 

specific programs. Specific improvement actions will be more clearly defined in the 

future and this improvement action will be re-activated. 

2. Explore the mix of service options (phones, walk-in, internet, volunteer services) to 

ensure that the most efficient and effective means is used to deliver service. 

During 2006 - 2007, the IRS delivered Phases 1 and 2 of the Taxpayer Assistance 

Blueprint (TAB) Report to Congress. The report provides results, actions, and 

recommendations on the appropriate mix of service options (phones, walk-in, internet, 

and volunteer services) to ensure that the most efficient and effective means are used to 

deliver services. The report includes the TAB Strategic Plan, which provides a portfolio 

IRS-124 
of over 50 recommended service investments that balance taxpayer needs and preferences 

with government value. Integration of the TAB Strategic Plan into the IRS Strategic 

Planning process will begin in January 2008. The significant recommended service 

investments scheduled for implementation in FY 2008 include providing toll-free callers 

with an Estimated Wait Time (EWT) while on hold for toll-free applications. IRS plans 

to collect and analyze the data on accuracy of EWT and the impact on taxpayer behavior 

and use the results to design an optimum strategy and goals for EWT. In addition, 

implementation of Contact Analytics (CA) will increase the ability to effectively identify

and respond to customer service problems. CA will expand functionality with additional 

software that captures data for all calls on all Toll-free product lines. Capabilities of CA 

include recording of all contacts and the ability to store the recording for analysis and 

tracking across the network resulting in improved taxpayer service. 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 the 

2007 filing season (January through June 2007), the application provided information to 

30 million taxpayers, which is approximately a 28 percent increase from the same period 

for 2006. In FY 2008, IRS will further expand online refund inquiry capabilities by 

introducing a version of "Where's My Refund?" for Spanish-speaking taxpayers. 

Beginning in FY 2008, the IRS deployed the Facilitated Self Assistance Research Project 

(FSRP) at 15 Taxpayer Assistance Centers (TAC). FSRP provides taxpayers with the 

ability to help themselves to IRS services from internet-connected computers located in 

the Taxpayer Assistance Centers (TAC) via IRS.gov. Analysis of results from the first 15 

sites will be used to determine further deployment. 

3. Improve program performance by researching the impact of taxpayer service programs 

on voluntary compliance and reporting findings by 2008. 

IRS plans to research the impact of taxpayer service programs on voluntary compliance 

and reporting findings in FY 2008. The effect of service on taxpayer compliance will be 

examined by focusing on the following four areas: meeting taxpayer needs by providing 

the right channel of communication, better understanding taxpayer burden, understanding 

taxpayer needs through the errors they make, and the impact of service on overall levels 

of voluntary compliance. The research will attempt to quantify the relationship between 

services provided and overall compliance. 

4. Improve the accuracy and consistency of tax law information provided to taxpayers by 

developing and implementing a single tool for use by walk-in and telephone assistors. 

The IRS is developing an on-line interactive tool that combines the content of the Probe 

& Response Guide (P&R Guide) used by toll-free telephone assistors and the Publication 

Method Guide (PMG) used by Taxpayer Assistance Center (TAC) assistors into one tool 

for use when answering tax law questions. The tool supports the TAB initiative to 

provide consistent, quality service to taxpayers across different service delivery channels. 

IRS-125 
PART Name: Taxpayer Advocate Service 

Year PARTed: FY 2004 

Rating Moderately Effective 

This program helps taxpayers solve tax problems when normal IRS systems have failed 

to treat them fairly. It serves as an independent advocate within the IRS for individuals 

and proposes solutions to systemic problems. 

OMB Major Findings/Recommendations 

1. The quality of the Advocate’s case work on behalf of taxpayers has improved from 

71 percent with quality standards in 2001 to 90.5 percent in 2004. 

2. 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. 

3. 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 

1. Improve program performance by developing a unit cost measure for its casework by 

2008. 

Phase I of a new time reporting system was implemented that gives TAS the ability to 

automatically capture the amount of time spent on cases, from receipt through closure, 

when a case is accessed through TAMIS. The system provides for reporting time by case 

characteristics such as criteria code (the reason a case is accepted), core issue (the

problem type), and type of system user (e.g., case advocate, manager, analyst, etc.). The 

work request for Phase II is complete and, when implemented, will provide a graphical 

front-end screen that allows users to capture time spent on cases when TAMIS is not used 

(e.g., research, telephone calls, etc.). The Phase II WR was submitted with an expected

implementation date of December 2008. TAS must have time data along with fiscal data 

and case complexity results 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. In FY 2009, 

TAS will track reliability and utility of Phase II time data results and results from case 

advocacy cost indicators and explore opportunities for integrating the data with 

performance metrics. 

2. Improve program performance by exploring other means to measure effectiveness in 

solving systemic problems leading to taxpayer hardship. IRS will report its findings in 

2006 for possible inclusion in its FY 2008 Budget (findings delayed until 2007). 

 

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During FY 2007, TAS implemented a formal quality review process and established 

baseline measures for quality and timeliness of closed Advocacy Projects and Immediate 

Interventions.1

 FY 2008 targets for TAS’s quality measures have been developed and 

have been shared with the IRS Oversight Board. TAS also developed and administered 

its first internal customer satisfaction survey and will analyze results during FY 2008. 

TAS is baselining data for efficiency and effectiveness and plans to establish FY 2009-

2011 performance targets by the end of FY 2008. 

TAS is also working to develop a set of outcome measures to track progress on 

improving case referrals from IRS Operating Divisions and is conducting a study with 

Wage & Investment on the referral of amended returns due to processing delays. 

Throughout FY 2008, TAS will continue to identify similar efforts with other Divisions. 

3. Improve financial information as part of the IRS-wide financial management 

improvements. 

The IRS has established an office responsible for developing a managerial cost 

accounting program and issued a service-wide cost policy in August 2007. At this time, 

managerial cost accounting is in its initial stages and actions are focused on identifying 

the systems and methodology to appropriately match cost and performance information. 

Until the objectives of the service-wide cost program have been clearly defined and 

determinations made on how costs will be accumulated at the bureau level, there are no

pending activities associated with developing cost-based measures for specific programs. 

Specific improvement actions will be more clearly defined in the future and this 

improvement action will be re-activated. 

4. Improve program performance by improving case quality to 91.5 percent by 2006, 93 

percent by 2009, and 95 percent by 2014. 

TAS fell just short of the goal in FY 2007 with a cumulative quality rate of 90.5 percent 

due to rising case receipts, complexity of case issues, and reduced staffing. From 2004 to 

2007, case receipts increased 47 percent while the number of advocates to work cases 

decreased by 18 percent. TAS’s case quality index goal for FY 2009 has been changed to 

91.7 percent. 

 

1

Advocacy Projects are issues submitted by taxpayers, practitioners, and IRS personnel that suggest that a 

law, regulation, or IRS procedure is creating a systemic problem for taxpayers. An Immediate Intervention

is an administrative issue, identified internally or externally, that causes immediate, significant harm to

multiple taxpayers and demands an urgent response.

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PART Name: Criminal Investigations

Year PARTed: FY 2005 

Rating Moderately Effective 

This program ensures taxpayers comply with their tax obligations by investigating 

possible criminal violations of the tax code. Conviction of tax cheaters deters tax evasion 

among the general public and helps reassure taxpayers that the system is fair. 

OMB Major Findings/Recommendations 

1. 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 $345billion.2 Criminal 

Investigation is one of the major IRS programs intended to minimize this revenue loss. 

2. 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). 

3. 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 

1. Implement Criminal Investigation Management Information System (CIMIS) 

enhancements to address the consolidation of areas, offices, and the movement of 

workgroups. 

Currently, CIMIS supports closing organizations, but not moving, merging, and splitting 

organizations. CIMIS release 2.2 will provide the capability to define moves, merges and 

splits and have the new organization structure reflected in user interfaces, reports and 

scoping logic. This CIMIS enhancement will allow CI the flexibility to adjust the 

organizational structure to more effectively and efficiently track performance and 

strategic goals. The enhancement is scheduled to be implemented by Q4 FY 2008. 

2. Implement the Investigative Scanning and Document Management System (ISDM). 

The ISDM will increase efficiency and effectiveness of CI employees by enabling them

to image, view, search, and manage all types of documentation generated and received 

during the course of criminal investigations. ISDM will allow employees to scan paper 

documents, converting them to an electronic format and linking them to on-going 

investigations. With the enhancement, employees can apply key word identifiers to 

enhance search and indexing capabilities allowing CI Special Agents to more efficiently 

 

2

 This figure has been updated to the most current data and differs from what is published on the OMB

ExpectMore.gov website. The tax gap as measured does not include the criminal sector, but tax fraud 

prosecutions have a large indirect effect on compliance. 

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gather, organize and summarize evidence. Design of the enhancement and prototype will 

be developed in FY 2008 and the initial roll-out to selected field office will occur during 

FY 2009. Final roll-out and training will continue through FY 2010, with all field offices 

completed as funding is applied. The ISDM is part of the Enterprise Content 

Management (ECM) effort sponsored by the Treasury Department under the Terrorism 

and Financial Intelligence (TFI) Domain for Law Enforcement. 

3. Implement a pilot program to improve the effectiveness of the Suspicious Activity 

Report (SAR) Review Teams. 

SAR Review Teams review reports from financial institutions detailing suspicious

monetary transactions. Review of the reports often leads to significant tax, money 

laundering, and narcotic investigations. The pilot program will maximize resources 

through co-location, use of deputized state and local officers, and strong U.S. Attorney 

Office support to increase the efficiency and effectiveness of the SAR Review Teams. 

The pilot will be implemented in seven CI offices by the end of FY 2008, with additional 

offices to be included in FY 2009. If the pilot is successful, it will result in the increased 

identification and prosecution of administrative criminal tax, money laundering, and 

currency crime investigations. It will also enhance the notification of law to individuals 

on currency transaction legislations and benefit compliance with regulations and 

strengthen future criminal investigations by documenting knowledge. 

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PART Name: Examinations 

Year PARTed: FY 2005 

Rating Moderately Effective 

This program ensures that citizens pay the correct tax by auditing returns at a high risk 

for non-compliance. Audits help ensure individuals comply with their tax obligations, 

deter tax evasion among the general public, and help reassure taxpayers that the system is 

fair. 

OMB Major Findings/Recommendations 

1. 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 $345 billion. 3 

Examination is one of the major IRS programs intended to minimize this revenue loss. 

2. 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 rates have 

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. 

3. 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 

1. Research tax compliance of S-corporations (a popular business form where profits are 

passed through to the owners and taxed only once) based on a statistically valid sample of 

the filing population. 

By June 2008, the S-corp compliance study will be completed. Design of sampling and 

exam procedures have been completed to generate the data for the study and the sample 

has been identified. The IRS is on target for completion of data collection in FY 2008. 

Results will be analyzed and tax gap estimates will be updated to help in the 

understanding of compliance issues. 

2. Improve tools for selecting the most productive audit cases by 2007 using the detailed 

compliance information gathered in the recent individual tax gap study. 

On October 2007, selection, classification and auditing of individual returns based on 

updated selection scores (DIF) began with results available to begin evaluating 

effectiveness of new scoring by October 2008. By September 2009, the IRS will use 

information from the Subchapter S-corps National Research Project to enhance return

selection and examination. Returns selected for examination in late FY 2007 will begin 

 

3

 This figure has been updated to the most current data and differs from what is published on the OMB

ExpectMore.gov website. 

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to show results in late FY 2008. IRS anticipates improved selection and possible 

reductions in "no change" rates. 

3. Improve program performance by introducing cost based efficiency measures by 2008 

(e.g., enforcement revenue/program budget). 

The IRS has established an office responsible for developing a managerial cost 

accounting program and issued a service-wide cost policy in August 2007. At this time, 

managerial cost accounting is in its initial stages and actions are focused on identifying 

the systems and methodology to appropriately match cost and performance information. 

Until the objectives of the service-wide cost program have been clearly defined and 

determinations made on how costs will be accumulated at the bureau level, there are no

pending activities associated with developing cost-based measures for specific programs. 

Specific improvement actions will be more clearly defined in the future and this 

improvement action will be re-activated. 

4. Undertake compliance study on individual income tax returns. 

In October 2007, IRS began reporting for the Tax Year (TY) 2006 individual income tax 

returns, and by October 2008 will begin reporting for the TY 2007 individual income tax 

returns. IRS has completed the design of procedures for sampling on the TY 2006 

returns, has already identified 95.5 percent of the sample, and has completed 

classification of 81 percent of the sample. 

5. Explore methods for measuring the impact of Examination on compliance. New 

efforts could include studies of the impact of audits on future compliance of audited 

taxpayers and attitude surveys. 

By September 2008, IRS will increase the number of Schedule C audits by 7 percent to 

address the individual business income underreporting gap. By September 2009, IRS 

will add another 5 percent to the increase. IRS also plans to update current tax gap 

estimates using new and existing data. By June 2008, the S-corp compliance study 

results will be released and used to update payment compliance estimates, and by June 

2009, both payment and filing estimates will be updated. 

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PART Name: Retirement Savings Regulatory Program

Year PARTed: FY 2006 

Rating Adequate

This program ensures that tax breaks provided to encourage retirement savings are only 

allowed for retirement plans that follow minimum standards. The law requires that plans 

follow participation, funding and vesting standards and provide some protection for the 

surviving spouse of the plan participants. 

OMB Major Findings/Recommendations 

1. The IRS cooperates with the Department of Labor and the Pension Benefit Guarantee 

Corporation to protect retirement investors and to ensure that retirement-related tax 

breaks are used for their intended purposes. Tax breaks to retirement plans to encourage 

savings total more than $100 billion per year. 

2. Preliminary data from the program's compliance study shows that retirement plans are 

in compliance with legal standards 80 percent of the time.

4

 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. 

 

3. 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 

1. Introducing cost based efficiency measures by 2008. 

The IRS has established an office responsible for developing a managerial cost 

accounting program and issued a service-wide cost policy in August 2007. At this time, 

managerial cost accounting is in its initial stages and actions are focused on identifying 

the systems and methodology to appropriately match cost and performance information. 

Until the objectives of the service-wide cost program have been clearly defined and 

determinations made on how costs will be accumulated at the bureau level, there are no

pending activities associated with developing cost based measures for specific programs. 

Specific improvement actions will be more clearly defined in the future and this 

improvement action will be re-activated. 

2. Implement electronic case file development system to improve timeliness and 

efficiency of the examination process.

Milestones: 

 

4

 Further study shows the baseline for compliance with legal standards has been reduced to 73 percent.

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January 2008 - Implement release to address technical and performance issues with 

application 

March 2008 - Complete training and roll-out of system to all groups. 

3. Implement staggered amendment process and review initial experience to further 

enhance determination processing efficiency. 

Milestones: 

March 2008 - Complete review of first set of pre-approved plan applications for defined 

contribution plans. 

April 2008 - Initiate technical review for defined benefit pre-approved plan applications. 

December 2008 - Develop recommendations to refine staggered amendment process.

4. Streamline voluntary compliance program and expand access for small businesses. 

Milestones: 

June 2008 - Issue new procedures to make it easier for small employers to self-correct 

plan defects. 

September 2008 - Expand marketing and outreach to promote voluntary compliance 

options to small business owners. 

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PART Name: Health Care Tax Credit Administration 

Year PARTed: FY 2006 

Rating Results Not Demonstrated

This program administers the Health Insurance Tax Credit, which helps displaced 

workers and retirees afford health insurance. It is intended to benefit workers who have 

lost their jobs due to trade with countries that participate in free trade agreements (e.g., 

the North America Free Trade Agreement). 

OMB Major Findings/Recommendations 

1. The program's measures do not adequately capture the program's success in providing 

access to the credit to potential beneficiaries. 

2. 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 IRS 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. 

3. 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 

1. Work with other participating federal agencies to develop long term goals by 2011 that 

capture the program's success in providing access to the tax credit to potential 

beneficiaries. 

In FY 2007, IRS completed a study of the time it takes individuals to enroll in the 

program once they receive the program kit. Results indicate participants can be enrolled 

and receive their first payment within 26 days (on average). IRS continues to work with 

DOL, state agencies, and the Pension Benefit Guaranty Corporation to understand the 

timelines and the steps necessary to encourage participation and improve access to the 

credits in an effort to identify the objectives to measure. 

2. Work with partner federal agencies to find ways to improve access to the tax credit for 

eligible workers. 

3. Continue to focus on administrative changes to lower program cost and improve 

taxpayer service. 

HCTC will implement cost efficient processes such as systemic performance testing and 

automation of manual processes. Improvements will include automation of critical 

repeatable processes necessary as participation increases. For this aged program, 

technical and process improvements have been identified to promote economies of scale 

to drive down costs and new efficiency-focused processes and technology is planned to 

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allow for systemic processing of annual premium changes, reducing costs associated with 

participants for whom a payment has not been made to a health plan administrator for 

three consecutive processing cycles. Also, IRS plans to streamline processing of 

payments by automating manual processes and accounting entries to eliminate manual 

work. IRS will also continue to identify data retrieval enhancements that allow the 

customer service representatives to provide consistent and timely customer service. As 

participation increases, technology costs will drop through continuous data management, 

archiving, and virtualization efforts. In FY 2008, HCTC will continue to look for 

opportunities to automate business processes and improve operations. HCTC will 

examine opportunities to improve the infrastructure and business system processes, 

including a payment processing solution, an automated premium increase solution, 

automation of the refund process, simplification of re-registration processes, and 

expansion of fax channels. New self-service channels are planned that provide taxpayers 

with more efficient assistance through web applications. 

IRS-135 
 4.3 – IRS Performance Measure Table and Data Dictionary Link 

The following table shows IRS performance measures achieved and projected from FY 

2006 through FY 2009. 

Performance Measures

Type of 

Measure

FY 2006

Actual

FY 2007

Actual

FY 2007 

Planned

FY 2008 

Planned

FY 2009 

Planned

Customer Service Representative Level of Service Oe, L 82.0% 82.1% 82.0% 82.0% 82.0%

Customer Contacts Resolved per Staff Year E 7,414 7,648 7,702 8,000 8,100

Percent of Eligible Taxpayers Who File for EITC Oe * * 75% - 85% 75% - 80% 75% - 80%

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

Customer Accuracy - Accounts (Phones) Ot 93.2% 93.4% 93.3% 93.5% 93.7%

Timeliness of Critical Filing Season Tax Products to the Public Ot 83.0% 83.5% 85.2% 86.0% 86.0%

Timeliness of Critical Other Tax Products to the Public Ot 61.2% 84.0% 79.6% 86.0% 86.0%

Percent Individual Returns Processed Electronically Oe, L 54.1% 57.1% 57.0% 61.8% 64.7%

Cost per Taxpayer Served ($) (HCTC) E $13.71 $14.90 $14.25 $14.25 $14.25

Sign-Up Time (Days) - Customer Engagement (HCTC) Ot 98.7 93.3 97.0 97.0 97.0

Percent of Business Returns Processed Electronically Oe, L 16.6% 19.1% 19.5% 20.8% 22.8%

Refund Timeliness - Individual (Paper) Ot 99.3% 98.9% 99.2% 98.4% 98.4%

Taxpayer Self-Assistance Rate E, L 46.8% 49.5% 48.6% 51.5% 52.5%

Examination Coverage - Individual Oe, L 1.0% 1.0% 1.0% 1.0% 1.0%

Field Exam Embedded Quality Oe, L 85.9% 85.9% 87.0% 87.0% 87.0%

Office Exam Embedded Quality Oe, L 88.2% 89.4% 89.0% 90.0% 90.0%

Examination Quality - Industry Oe, L 85.0% 87.0% 88.0% 88.0% 89.0%

Examination Quality - Coordinated Industry Oe, L 96.0% 96.0% 97.0% 96.0% 96.0%

Examination Coverage - Business Oe, L 7.3% 6.8% 8.2% 6.6% 6.8%

Examination Efficiency - Individual E, L 128 137 136 133 134

Automated Underreporter Efficiency E, L 1,832 1,956 1,932 1,961 1,823

Automated Underreporter Coverage E, L 2.4% 2.5% 2.5% 2.5% 2.5%

Collection Coverage (Units) Ot, L 54.0% 54.0% 54.0% 53.0% 53.0%

Collection Efficiency (Units) E, L 1,677 1,828 1,723 1,835 1,835

Field Collection Embedded Quality Ot, L 84.2% 84.0% 86.0% 86.0% 86.0%

Automated Collection System Accuracy Oe 91.0% 92.9% 91.0% 92.0% 92.0%

Criminal Investigations Completed Ot, L 4,157 4,269 4,000 4,000 4,025

Number of Convictions Oe, L 2,019 2,155 2,069 2,135 2,135

Conviction Rate Oe, L 91.5% 90.2% 92.0% 92.0% 92.0%

Conviction Efficiency Rate ($) E, L $328,750 $301,788 $314,008 $317,625 $317,625

TE/GE Determination Case Closures Ot 108,462 109,408 118,200 100,600 98,000

BSM Project Cost Variance by Release/Subrelease E ** ** 10.0% 10.0% 10.0%

BSM Project Schedule Variance by Release/Subrelease E   10.0% 10.0% 10.0%

**  The Cost and Schedule Variance is based on +/- 10 percent and reported on several project releases/subreleases.

IRS Performance Measures

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

* The IRS is revising the methodology for estimating the eligibility rate. Data is not available.

Data Dictionary Link for Performance Measures 

For detailed information about each performance measure, including definition, 

verification and validation, please go to: 

http://www.irs.gov/pub/irs-utl/2008_data_dictionary.pdf

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4.4 – Summary of IRS FY 2009 Budget Request Bureau: Internal Revenue Service ENFORCEMENT ENFORCEMENT BSM HITCA TOTAL Summary of IRS 2009 Budget Request $000 FTE $000 FTE $000 FTE $000 FTE $000 FTE $000 FTE $000 FTE $000 FTE FY 2008 Enacted $2,150,000 31,218 $4,780,000 47,349 $3,680,059 12,181 $3,612,833 36,066 $6,997,226 54,682 $267,090 358 $15,235 17 $10,892,384 91,123 Changes to Base: Maintaining Current Levels $54,726 $126,003 $82,580 $86,261 $177,048 $1,354 $322 $264,985

Pay Annualization 14,435 33,184 9,883 18,332 39,170 332 20 57,854Pay Inflation Adjustment 38,823 87,006 25,399 48,838 102,390 1,022 53 152,303Non-Pay Inflation Adjustment 1,468 5,813 47,298 19,091 35,488 249 54,828

Transfers ($1,000) ($1,370) ($523) ($1,847) ($2,370)

Transfer to TIGTA (1,370) (523) (847) (1,370)Transfer to FinCEN (1,000) (1,000) (1,000)

Efficiencies/Savings ($14,969) (207) ($48,762) (538) ($30,367) (230) ($37,415) (298) ($56,683) (677) ($151) (1) ($94,249) (976)

Efficiency Savings (48,762) (538) (22,443) (230) (14,522) (91) (56,683) (677) (151) (1) (71,356) (769)Increase e-File Savings (8,996) (207) (1,304) (10,300) (207) (10,300) (207)Non-Recur Savings (5,973) (6,620) (12,593) (12,593)

Reinvestments $4,463 30 $28,141 $19,294 30 $13,310 $32,604 30

Increase Efficiency through Submission Processing Consolidations 2,006 2,006 2,006Address Correspondence Inventory 2,457 30 2,457 30 2,457 30Fully Fund Postage Base 28,141 14,831 13,310 28,141

Subtotal Changes to Base $44,220 (177) $76,241 (538) $78,984 (230) $67,617 (268) $131,828 (677) $1,354 $171 (1) $200,970 (946)Total FY 2009 Base - Current Services $2,194,220 31,041 $4,856,241 46,811 $3,759,043 11,951 $3,680,450 35,798 $7,129,054 54,005 $268,444 358 $15,406 16 $11,093,354 90,177Program Changes

Program Decreases:

Taxpayer Assistance Centers and Outreach (31,200) (262) (31,200) (262) (31,200) (262)Taxpayer Advocate Service (7,711) (25) (7,711) (25) (7,711) (25)Volunteer Income Tax Assistance Grants Program (8,000) (8,000) (8,000)Business Systems Modernization (45,780) (25) (45,780) (25)

Subtotal, Program Decreases ($46,911) (287) ($46,911) (287) ($45,780) (25) ($92,691) (312)

Program Increases:

Enforcement InitiativesReduce the Tax Gap for S

mall Business / Self-Employed 2,691 38 132,093 1,570 33,714 2,691 38 165,807 1,570 168,498 1,608

Reduce the Tax Gap for Large Businesses 57,009 515 12,479 4 69,488 519 69,488 519Improve Tax Gap Estimates, Measure

ment, and Detection of Non-Compliance 35,473 359 15,585 34 51,058 393 51,058 393

Increase Reporting Compliance of U.S. Taxpayers 

with Offshore Activity 11,075 124 2,622 13,697 124 13,697 124

Expand Document Matching 25,376 413 9,684 35,060 413 35,060 413Implement Legislative Proposals to Improve Compliance 23,045 23,045 23,045

Subtotal, Program Increases $2,691 38 $261,026 2,981 $97,129 38 $2,691 38 $358,155 3,019 $360,846 3,057

Subtotal FY 2009 Progra

m Changes ($44,220) (249) $261,026 2,981 $97,129 38 ($44,220) (249) $358,155 3,019 ($45,780) (25) $268,155 2,745

Total FY 2009 Request $2,150,000 30,792 $5,117,267 49,792 $3,856,172 11,989 $3,636,230 35,549 $7,487,209 57,024 $222,664 333 $15,406 16 $11,361,509 92,922

OPERATIONS 

SUPPORT

TAXPAYER

SERVICES TAXPAYER SERVICE

IRS-137