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 

FY 2006 FY 2007 FY 2007

Appropriation Enacted

President's 

Budget* CR-rate*

President's 

Budget*

 $ Change 

over CR-rate

% Change 

over CR-rate

Taxpayer Services $2,142,042 $2,079,151 $2,046,908 $2,103,089 $56,181 2.74%

Enforcement 4,708,441 4,797,126 4,660,572 4,925,498 $264,926 5.68%

Operations Support 3,461,205 3,488,404 3,519,228 3,769,587 $250,359 7.11%

Business Systems Modernization 242,010 212,310 196,810 282,090 $85,280 43.33%

Health Insurance Tax Credit Administration 20,008 14,846 14,846 15,235 $389 2.62%

Total Appropriated Resources $10,573,706 $10,591,837 $10,438,364 $11,095,499 $657,135 6.30%

*

The FY 2007 budget is supplemented by $242 million in users fees (includes $135 million in new user fees) and the FY 2008 budget is supplemented by $180 million in user fees.

HITCA). In addition, FY 2007 CR-rate includes proposed interappropriation transfers.

Table 1.1

FY 2008

NOTE: Throughout this document FY 2006 and prior years have been presented in the new budget structure for comparability across fiscal years. This differs from the President's Budget 

Appendix which presents FY 2006 as it was executed. The FY 2006 enacted level excludes rescission of unobligated balances ($29 million from Taxpayer Services and $9 million from

Dollars in Thousands

FY 2008 Priorities 

In 2008 the IRS will focus its efforts on implementing Treasury’s tax compliance 

improvement strategy (see http://www.treasury.gov/press/releases/hp111.htm). This 

includes the following priorities: 

• Maintain balance between taxpayer service and enforcement 

• Improving tax compliance by: 

o Increasing front-line enforcement resources to improve tax compliance 

o Increasing voluntary compliance through improved taxpayer service options 

and enhanced research 

o Implementing legislative and regulatory changes 

• Invest in technology to reverse infrastructure deterioration, accelerate modernization, 

and improve the productivity of existing resources
Section 1 – Purpose ........................................................................................................... 4

1A – Description of Bureau Vision and Priorities...................................................... 4 

Summary Budget Adjustment Table (Taxpayer Service/Enforcement) ..................... 8 

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

Section 2 – Budget Adjustments & Appropriations Language .................................. 18

Program Summary by Appropriations Account and Budget Activity...................... 18 

Appropriation Detail Table....................................................................................... 19 

Summary Budget Adjustment Table......................................................................... 20 

2A – Budget Decreases and Increases Description (IRS)......................................... 21 

Increased e-File Savings ....................................................................................... 22 

Increase Efficiency through Submission Processing Site Consolidations............ 23 

Upgrade Critical IT Infrastructure ........................................................................ 24 

Enhance Computer Security Incident Response Center (CSIRC) and Network 

Infrastructure Security .......................................................................................... 25 

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

Improve Compliance Estimates, Measures, and Detection of Non-Compliance.. 29 

Improve Compliance Among Small Business and Self-Employed Taxpayers .... 29 

Implement Legislative Proposals to Improve Compliance................................... 32 

Increase Compliance for Large Multinational Businesses.................................... 35 

Establish New Document Matching – Kansas City.............................................. 38 

Increase Individual Filing Compliance................................................................. 39 

Increase Tax-Exempt Entity Compliance ............................................................. 40 

Increase Criminal Tax Investigations ................................................................... 41 

Research Effect of Service on Taxpayer Compliance .......................................... 43 

Expand Volunteer Income Tax Assistance........................................................... 44 

Implement Taxpayer Assistance Blueprint........................................................... 45 

Operating Levels Table............................................................................................. 48 

2B – Appropriations Language and Explanation of Changes................................... 49 

2C – Legislative Proposals........................................................................................ 52 

Section 3 – Budget and Performance Plan ................................................................... 54

Taxpayer Services (TS)........................................................................................... 54 

Appropriation Description ................................................................................ 54 

Appropriations Detail Table ............................................................................. 54 

Budget Adjustment Table ................................................................................. 55 

Operating Levels Table..................................................................................... 56 

TS Budget Activity: Pre-Filing Taxpayer Assistance and Education..................... 57 

3A - Description................................................................................................ 57 

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

TS Budget Activity: Filing and Account Services.................................................... 60 

3A – Description............................................................................................... 60 

3B – Budget and Performance Plan.................................................................. 61 

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Enforcement (ENF)................................................................................................. 64 

Appropriation Description ................................................................................ 64 

Appropriation Detail Table............................................................................... 64 

Budget Adjustment Table ................................................................................. 65 

Operating Levels Table..................................................................................... 66 

ENF Budget Activity: Investigations........................................................................ 67 

3A – Description............................................................................................... 67 

3B – Budget and Performance Plan.................................................................. 68 

ENF Budget Activity: Exam and Collections........................................................... 69 

3A – Description............................................................................................... 69 

3B – Budget and Performance Plan.................................................................. 71 

ENF Budget Activity: Regulatory ............................................................................ 73 

3A – Description............................................................................................... 73 

3B – Budget and Performance Plan.................................................................. 74 

Operations Support (OS) ....................................................................................... 77 

Appropriation Description ................................................................................ 77 

Appropriation Detail Table............................................................................... 77 

Budget Adjustment Table ................................................................................. 78 

Operating Levels Table..................................................................................... 79 

OS Budget Activity: Infrastructure .......................................................................... 80 

3A - Description................................................................................................ 80 

3B – Budget and Performance Plan.................................................................. 80 

OS Budget Activity: Shared Services and Support .................................................. 81 

3A – Description............................................................................................... 81 

3B – Budget and Performance Plan.................................................................. 83 

OS Budget Activity: Information Services............................................................... 85 

3A – Description............................................................................................... 85 

3B – Budget and Performance Plan.................................................................. 87 

Business Systems Modernization (BSM) .............................................................. 90 

Appropriation Description ................................................................................ 90 

Appropriation Detail Table............................................................................... 90 

Budget Adjustment Table ................................................................................. 91 

Operating Levels Table..................................................................................... 92 

BSM Budget Activity: Business Systems Modernization ......................................... 93 

3A – Description............................................................................................... 93 

Health Insurance Tax Credit Administration (HITCA)..................................... 98 

Appropriation Description ................................................................................ 98 

Appropriation Detail Table............................................................................... 98 

Budget Adjustment Table ................................................................................. 99 

Operating Levels Table................................................................................... 100 

HITCA Budget Activity: Health Insurance Tax Credit Administration ................ 101 

3A - Description.............................................................................................. 101 

3B – Budget and Performance Plan................................................................ 102 

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

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

Human Resources Table ......................................................................................... 105 

4B – Information Technology Strategy .................................................................. 106 

Summary of IT Resources Table ............................................................................ 110 

Program Assessment Rating Tool (PART) Evaluation Table ................................ 112 

IRS Performance Measures Summary Table and Data Dictionary Link................ 122 

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Section 1 – Purpose 

1A – Description of Bureau Vision and Priorities 

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

to fund most government operations and public services as well as implements Treasury’s 

tax compliance improvement strategy. The IRS taxpayer service programs provide 

assistance to millions of taxpayers to help them understand and meet their tax obligations. 

The IRS enforcement programs are aimed at deterring taxpayers inclined to evade their 

responsibilities while vigorously pursuing those who violate tax laws. 

The President’s Budget request for FY 2008 supports the IRS’ five-year strategic plan. 

This plan underscores the IRS commitment to provide quality service to taxpayers while 

enforcing America’s tax laws in a balanced manner. The IRS strategic plan goals are: 

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

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; and 

• 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 2008 Budget priorities follow the guiding principle of 

Service plus Enforcement equals Compliance and sustain the IRS’ objectives: 

• Modernize information systems and business processes to maximize resources 

and improve service and enforcement; 

• Enhance research to better allocate resources to IRS programs; 

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

corporations, high-income taxpayers and abusive domestic and off-shore tax 

entities; 

• Deter abuse within the tax-exempt community; and 

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

Reducing the Tax Gap 

The IRS collects 95 percent of the revenues that fund the United States Government. The 

FY 2008 Budget request will accelerate deficit reduction by improving tax compliance to 

strengthen the Federal Government’s ability to collect more of these legally-owed taxes. 

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The tax gap is the difference between the amount of tax imposed on taxpayers for a given 

year and the amount that is paid voluntarily and timely. The IRS’ latest estimate shows 

that the overall gross tax gap for Tax Year 2001 was about $345 billion. 

Tax Year 2001 Federal Tax Gap

(Dollars in Billions)

Actual Amounts 

Updated Estimates

Dependent on Older Estimates

Status of the Estimates

Estimates in Bold Boxes 

Have Been Updated

Based on Detailed

TY01 NRP Results

Nonfiling*

27

Underpayment

33

Estate & Excise

Taxes

4

Corporation

Income Tax

30

Large 

Corporations

25

Small 

Corporations

5

Underreporting

285

Individual

Income Tax

197

Underreported

Business

Income

109

Underreported

Non-Business

Income

56

Overstated

Adjustments,

Deductions,

Exemptions, and 

Credits

32

Employment

Tax

54

FICA & 

Unemployment

Taxes

15 

Self-Employment

Tax

39

FICA & 

Unemployment

Taxes

15 

Self-Employment

Tax

39

Gross Tax Gap:345

(Noncompliance Rate : NCR = 16.3%)

*Updated using Census tabulations

This estimate, however, does not take into account taxes that were paid voluntarily but 

paid late, or recoveries from the IRS enforcement activities. Taking these factors into 

account, the “net tax gap” was an estimated $290 billion. 

The tax gap is comprised of three sources of taxpayer noncompliance: 

• Underreporting (not reporting one’s full tax liability even when the return is filed on 

time), 82 percent of the tax gap; 

• Underpayment (not paying by the due date the full amount of tax reported on a timely 

return), 10 percent of the tax gap; and 

• Non-filing (not filing required returns or not filing on time), eight percent of the tax 

gap. 

Increased resources for the IRS’ exam and collection programs yield direct measurable 

results. Once the new staff proposed in this request are trained and become more 

experienced, the enforcement revenue generated each year will be $699 million. 

However, this estimate excludes the likely larger revenue impact from the deterrence 

value of these and other IRS enforcement programs (e.g., criminal investigations). It also 

excludes the impact of taxpayer services on voluntary compliance. 

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The IRS cannot currently measure either the impact of deterrence or service, but they are 

positive. The complexity of the nation’s current tax system is a significant reason for the 

tax gap, and even sophisticated taxpayers make honest mistakes on their tax returns. 

Accordingly, helping taxpayers understand their obligations under the tax law is a critical 

part of improving voluntary compliance. To this end, the IRS remains committed to a 

balanced program assisting taxpayers in both understanding the tax law and remitting the 

proper amount of tax. 

It is the need to improve tax compliance that drives much of what the IRS does. IRS 

enforcement activities, such as examination and collection, directly target tax gap 

elements, while IRS taxpayer services provide the information and tools taxpayers need 

to calculate and understand their tax obligations; collect, process, and store filed forms; 

and collect and process tax receipt and refunds owed timely. This budget request sets 

forth the funding, policy and tax law changes need to implement Treasury’s tax 

compliance plan and make progress in improving tax compliance. 

Taxpayer Service and Enforcement Programs 

The FY 2008 President’s Budget request accelerates deficit reduction by strengthening 

the IRS’ ability to administer taxpayer service and increase enforcement and collection of 

federal unpaid tax liabilities. IRS programs and supporting functions appropriated in the 

three operating accounts - taxpayer service, enforcement and operations support – are 

strategically aligned with either taxpayer service or tax law enforcement activities. 

Enforcement Program: The IRS continues its emphasis on tax law enforcement, 

increasing collection of delinquent tax debt from $34 billion in 2002 to $49 billion in 

2006, an increase of 44 percent. Since 2003, federal government receipts have also 

increase by over $600 billion with revenue growth greatest in the areas of corporate taxes 

and high-income individual taxes. In FY 2008, the President’s Budget increases funding 

for enforcement to $7,228.2 million. This includes $291.3 million for new enforcement 

initiatives and $225.7 million in inflationary cost increases offset by efficiencies savings 

of $82.2 million. As in 2006 and 2007, the Administration proposes to include these 

enforcement increases as a Budget Enforcement Act program integrity cap adjustment 

(see chapter 15, Budget Reform Proposals in the Analytical Perspectives volume of the 

2008 Budget). IRS Enforcement resources are funded in the Enforcement and Operations 

Support appropriations accounts. 

Taxpayer Service Program: Helping the public understand its tax reporting and payment 

obligations is a cornerstone of taxpayer compliance. In FY 2008, the President’s Budget 

increases funding for taxpayer service to $3,570.0 million. This includes $56.1 million 

for new service initiatives and $112.7 million in inflationary cost increases offset by 

efficiency savings of $37.7 million. IRS Taxpayer Service resources are funded in the 

Taxpayer Service and Operations Support appropriation accounts. 

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FY 2007

CR-rate

Taxpayer Services $3,498.4 $3,438.7 $3,570.0 3.8%

Direct Appropriation $2,142.0 $2,046.9 $2,103.1

Operations Support $1,356.4 $1,391.8 $1,466.9

Enforcement $6,813.2 $6,788.0 $7,228.2 6.5%

Direct Appropriation $4,708.4 $4,660.6 $4,925.5

Operations Support $2,104.8 $2,127.4 $2,302.7

Total Taxpayer Services and Enforcement $10,311.6 $10,226.7 $10,798.2 5.6%

Taxpayer Service and Enforcement Programs

(Dollars in Millions)

Programs

% Change 

FY 2007 to 

FY 2008

FY 2006

Enacted

FY 2008 

President's 

Budget

FY 2008 President’s Budget Request 

The FY 2008 President’s Budget request for the IRS is $11,095.5 million, 6.3 percent 

above the FY 2007 Continuing Resolution (CR) level. The funding request for taxpayer 

service programs is $3,570.0 million; for enforcement programs is $7,228.2 million; for 

Business Systems Modernization (BSM) is $282.1 million; and for Health Insurance Tax 

Credit Administration is $15.2 million. The IRS total increase for FY 2008 of 

$657.1 million, which includes $27.6 million for a technical adjustment to the FY 2007 

base due to the CR; $340.0 million for maintaining current levels offset by $120.0 million 

in efficiency savings; and a net program increase of $409.5 million to enhance the IRS’ 

infrastructure and modernization, enforcement, and taxpayer service programs that focus 

on reducing the tax gap. By 2010, these FY 2008 investments will increase annual 

enforcement revenue by $699 million. In addition, it is estimated that the tax compliance 

improvement legislative proposals will generate approximately $29 billion over the next 

ten years. 

The IRS program initiatives focus on implementation of Treasury’s tax compliance 

improvement strategy and the most significant needs for FY 2008: 

• Improve IRS information technology infrastructure ($81.0 million and $62.1 million 

for the BSM program) to strengthen both taxpayer service and enforcement programs; 

• Expand enforcement activities targeted at improving compliance ($246.4 million); 

and 

• Enhance taxpayer service ($20 million) by continuing its efforts to increase and 

improve the delivery of services offered to taxpayers by expanding its research and 

implementing new technology (e.g., Spanish “Where’s My Refund?” and an 

estimated calling wait time feature). 

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Summary Budget Adjustment Table (Taxpayer Service/Enforcement) 

Taxpayer Service Program Summary Budget Adjustment Table 

(includes both direct costs in the Taxpayer Services appropriation 

 and indirect costs in the Operations Support appropriation) 

FTE Amount

FY 2007 President's Budget 35,931 $3,456,333

CR-rate Adjustment (330) (39,711)

(541) ($37,727)

(541)

($6,479)

(6,479)

FY 2007 CR-rate 35,601 $3,416,622

Interappropriation Transfer Corrections to Budget Restructure 43 22,136

FY 2007 Operating Plan at CR-rate 35,644 $3,438,758

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $193

Base Adjustment 193

Maintaining Current Levels (MCLs) $112,681

Pay Annualization 12,881

Pay Inflation Adjustment 74,475

Non-Pay Inflation Adjustment 25,325

Efficiency Savings

Subtotal, Changes to Base $75,147

FY 2008 Base 35,103 $3,513,905

Program Changes:

Program Decreases/Savings: 0

Increased e-File Savings

Program Reinvestments: 0 $6,479

Increase Efficiency through Submission Processing Site Consolidations 6,479

Program Increases:

Infrastructure Initiatives 0 $30,948

Upgrade Critical IT Infrastructure 24,477

Enhance Computer Security Incident Response Center (CSIRC) and Network Infrastructure Security 6,471

Enforcement Initiatives 44 $5,107

Improve Compliance Among Small Business and Self-Employed Taxpayers 31 3,309

Increase Compliance for Large Multinational Businesses 4 1,055

Expand Document Matching in Existing Sites 3 248

Increase Individual Filing Compliance 6 495

Taxpayer Service Initiatives 54 $20,000

Research Effect of Service on Taxpayer Compliance 8 5,000

Expand Volunteer Income Tax Assistance 46 5,000

Implement Taxpayer Assistance Blueprint 0 10,000

Subtotal, FY 2008 Program Changes 98 $56,055

Total, FY 2008 President's Budget Request 35,201 $3,569,960

Program: Taxpayer Service

Table 2.1

FY 2008 Budget Highlights

Dollars in Thousands

IRS - 8
Enforcement Program Summary Budget Adjustment Table 

(includes both direct costs in the Enforcement appropriation 

and indirect costs in the Operations Support appropriation) 

FTE Amount

FY 2007 President's Budget 56,771 $6,908,348

CR-rate Adjustment (988) (98,262)

(43) (22,136)

(643) ($82,254)

(643)

FY 2007 CR-rate 55,783 $6,810,086

Interappropriation Transfer Corrections to Budget Restructure

FY 2007 Operating Plan at CR-rate 55,740 $6,787,950

Changes to Base:

 Technical Adjustments to FY 2007 Base due to CR 0 $5,494

Base Adjustment 0 5,494

 Maintaining Current Levels (MCLs) $225,692

Pay Annualization 0 27,362

Pay Inflation Adjustment 0 157,054

Non-Pay Inflation Adjustment 0 41,276

 Efficiency Savings

Subtotal, Changes to Base $148,932

FY 2008 Base 55,097 $6,936,882

Program Changes:

Program Increases:

Infrastructure Initiatives 0 $50,052

Upgrade Critical IT Infrastructure 0 35,523

Enhance Computer Security Incident Response Center (CSIRC) and Network Infrastructure 0 14,529

Enforcement Initiatives 1,486 $241,280

Improve Compliance Estimates, Measures, and Detection of Non-Compliance 258 41,022

Improve Compliance Among Small Business and Self-Employed Taxpayers 454 69,856

Implement Legislative Proposals to Improve Compliance 0 23,045

Increase Compliance for Large Multinational Businesses 154 25,145

Expand Document Matching in Existing Sites 214 27,958

Establish New Document Matching - Kansas City 205 23,205

Increase Individual Filing Compliance 55 6,049

Increase Tax-Exempt Entity Compliance 109 15,000

Increase Criminal Tax Investigations 37 10,000

Subtotal, FY 2008 Program Changes 1,486 $291,332

Total, FY 2008 President's Budget Request 56,583 $7,228,214

Program: Enforcement

Table 2.1

FY 2008 Budget Highlights

Dollars in Thousands

IRS - 9
1B – Program History and Future Outlook 

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

year, IRS employees make millions of contacts with 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 that non-compliant taxpayers 

pay their fair share. To improve voluntary tax compliance, the IRS must meet taxpayer 

expectations, respond quickly to technological and demographic changes and, provide the 

proper balance of service and enforcement. 

Strategic Goal I: Improve Taxpayer Service 

The IRS serves a constituency of more than 135 million individual tax filers. During the 

2006 filing season, the IRS issued more than 100 million refunds totaling over $277 

billion. In addition, the IRS processed another 46.9 million returns for partnerships, 

corporations, employment taxes and exempt organizations. Providing quality taxpayer 

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

The IRS allocates its resources among its service, education and outreach programs to 

ensure taxpayers understand their obligations and voluntarily pay their taxes. 

Assisting the public in meeting its tax obligations is the cornerstone of taxpayer 

compliance and is vital for maintaining public confidence in the tax system. Over the 

past several years, the IRS has made significant progress in improving customer service 

to the taxpayers: 

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

filers increased 27 percent, from 51 in 1999 to 65 in 2006. This is the largest increase 

of all federal agencies surveyed by the ACSI during this period. Program 

improvements contributing to an increase in customer satisfaction rates were 

implemented as a result of a Program Assessment Rating Tool (PART) assessment 

conducted for the Taxpayer Service program in FY 2004. Improvements included the 

launch of an improved, interactive telephone Probe and Response Guide for the 2005 

filing season, and the implementation of a process using recorded call transcripts to 

create test call scenarios for training and certifying Customer Service 

Representatives. 

• In FY 2006, the IRS level of service reached rates of 90.9 and 93.2 percent for tax 

law and account accuracy, respectively, and toll-free level of service was maintained 

at 82 percent. 

• Nearly 14,000 large corporate taxpayers subject to the electronic filing mandate 

e-filed their returns successfully. The largest corporate taxpayers transmitted their 

returns without delay or backlog. The IRS processed this volume of very complex 

returns and accepted and acknowledged receipt within its 24-hour turnaround 

standard. 

IRS - 10
• IRS.gov is one of the most heavily visited sites on the internet. In FY 2006, the 

number of visits increased 9.8 percent and the number of pages viewed increased over 

three percent. 

• The IRS delivered another successful filing season in 2006 with 134.7 million total 

individual returns received compared to 128.6 million in 2005. For the second year in 

a row, more than half (72.8 million) of all individual returns were filed electronically, 

representing a 6.6 percent increase over FY 2005. The most striking change is the 

18.5 percent (22.2 million) increase in electronic filing from home computers. 

The mix of taxpayer services demanded by the public appears to be changing. Toll-free 

calls and visits to Taxpayer Assistance Centers (TACs) have declined. In FY 2006, the 

IRS completed more than 24.3 million automated calls compared to 25.7 million in 

FY 2005, and answered 32.7 million assistor calls compared to 33.4 million in FY 2005. 

The IRS also achieved the FY 2006 82 percent level of service goal, with an accuracy 

rate of 91 percent for tax law questions. The accuracy of responses to tax law questions 

at the TACs increased to 83 percent, compared to 75 percent in FY 2005. Waiting time 

at the TACs was minimized with more than eight out of ten customers being served in 

30 minutes or less. 

The TACs experienced an eight percent reduction in walk-in contacts due to the overall 

decline in the number of customers seeking face-to-face assistance. The reduced demand 

for these services can be attributed, in part, to increased usage of the newly redesigned, 

award-winning web site. The redesigned website enhances taxpayers’ ability to find 

desired content through improved search and navigation functions. In addition, the IRS 

offered a set of web-based business products for practitioners and other third parties. IRS 

e-Services such as the Internet-Employer Identification Number service and Transcript 

Delivery service experienced significant usage. Overall customer satisfaction with the 

award-winning IRS.gov website increased five percentage points based on the ACSI and 

use continued to grow. More than 1.3 billion web pages were viewed on IRS.gov and 

over 24 million taxpayers used the web application “Where’s My Refund?” to check the 

status of their refunds. 

In FY 2006, the IRS delivered the first phase of the Taxpayer Assistance Blueprint 

(TAB), a comprehensive study that reviewed current taxpayer service options and 

identified areas for improvements, including expanded taxpayer education and 

awareness, optimized use of partner services, increased self-service options, and 

expanded training and support tools for taxpayers. The Phase II report, which will be 

delivered in FY 2007, includes additional research and establishes the framework to 

develop short and long-term outcome goals and metrics for measuring the IRS’ progress 

on service improvements for taxpayers. 

In FY 2007 and FY 2008, the IRS will continue with its efforts to increase and improve 

the services offered to taxpayers, primarily focusing on those outside of the traditional 

telephone access. The IRS will increase self-service applications, continue to ensure web 

navigation is user-friendly, and also improve the quality and accuracy of its telephone 

responses. The IRS will expand its research and evaluate information regarding taxpayer 

IRS - 11
service needs, priorities, and preferences in order to improve delivery services. The IRS 

will also invest more in technology, process improvements, and training to achieve 

consistent and repeatable service with reduced costs. 

Strategic Goal II: Enhance Enforcement of the Tax Law 

A smoothly functioning tax administration system inspires confidence among taxpayers. 

Voluntary compliance with tax laws increases if all taxpayers believe that their neighbors 

are paying their fair share. 

Over the past decade, the IRS has improved its enforcement programs’ performance by 

streamlining and implementing centralized work processes. This resulted in improved 

workload selection techniques, increased managerial involvement in casework, and 

initiatives that reduce cycle time. As a result, in FY 2006, the IRS: 

• Collected more than $2.4 trillion dollars in tax revenue, including $48.7 billion 

through IRS enforcement activities; 

• Audited more than 1.2 million taxpayers, a seven percent increase from FY 2005, 

including an 18 percent increase in audits of high-income taxpayers (those earning 

$100,000 or more); 

• Increased small business audits (assets < $10 million) by eight percent and automated 

underreporter closures by 10 percent; 

• Closed 15 percent more collection cases and collected nine percent more from 

delinquent accounts in FY 2006 compared to FY 2005; and 

• Increased the fraud referral acceptance rate (i.e., the ratio of internal referrals within 

the IRS received to the number of those cases that are accepted by CI) to 71.8 percent 

exceeding the five year high achieved in FY 2005 of 68.8 percent and the total 

number of referrals accepted (445) was also higher than in FY 2005. 

• Increased the use of substitute for return authority by 66 percent (substitute for return 

authority allows the IRS to file a tax return for an individual or business when it does 

not file a required return). Examiners prepared and filed 665,000 returns for 

individuals and 182,000 returns for businesses classified as non-filers. 

The IRS also exceeded prior-year levels for coverage, efficiency and examination quality 

annual performance targets. In FY 2006, collection coverage increased to 54 percent, 

individual examination coverage improved while business examination coverage 

remained above seven percent, and automated underreporter efficiency increased almost 

eight percent to 1,832 cases. In addition, examination quality for industry and 

coordinated industry cases increased to 85 percent and 96 percent, respectively. 

Improvements in inventory management, decreases in cycle time, and enhanced training 

all contributed to improved productivity. Improved quality controls measuring critical 

elements of the examination, a reinforced focus on case quality to drive improvement 

efforts, and the delivery of business results, led to improved performance for the third 

consecutive year. 

IRS - 12
In FY 2007 and FY 2008, the IRS will continue to reengineer its examination and 

collection procedures to reduce time, increase yield, and expand coverage. As part of its 

regular examination program, the IRS is expanding the use of cost-efficient audit 

techniques. By increasing its use of reliable third-party data to verify information 

reported by taxpayers, the IRS can better target its audit resources. The IRS is expanding 

its efforts to shift to agency-wide strategies, which maximize efficiency by better aligning 

problems (such as non-filers and other areas of noncompliance) and their solutions within 

the organization. The IRS is committed to improving the efficiency of its audit process, 

measured by audit change rates and other appropriate benchmarks. 

However, efficiency gains in existing programs alone will not significantly reduce the tax 

gap. Some of the initiatives, including new legislative proposals, such as providing the 

IRS with access to more third-party data and simplifying the tax code, will also help 

make compliance activities more effective. 

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

Additional funding for information technology (IT) infrastructure and Business Systems 

Modernization (BSM) is the highest funding priority for FY 2008. The IRS cannot 

significantly improve compliance through its service and enforcement programs without 

a robust IT infrastructure. IT infrastructure investments support services to both 

taxpayers and other government agencies and enforcement by providing IRS frontline 

employees with the basic tools necessary to perform their jobs. A modernized and secure 

infrastructure will enhance the speed, security, and functionality necessary to keep pace 

with an automated economy. The IRS must keep pace with the growing demand and 

volume of electronic submission, payment, and refund transactions for tax remittances 

and offer taxpayers a variety of faster alternatives for satisfying their tax obligations. 

These efforts will continue to place greater demand on the IRS to provide a modernized 

and secure IT infrastructure. 

Furthermore, a successful modernization program is critical to supporting long-term tax 

administration operations. Successful BSM program delivery during the past two years 

demonstrates that the IRS has established a foundation of disciplined program 

management processes and controls. The IRS managed BSM projects with a degree of 

sustained success not seen since program inception. This accomplishment is especially 

noteworthy because the program achieved this while transitioning from a contractor-led 

program to an IRS-led program. 

The IRS also developed an IT Modernization Vision and Strategy (MV&S) for its IT 

systems for 2008 that align with and support the IRS Strategic Plan. Through the MV&S 

process, the IRS developed a plan showing how the IRS can effectively meet IT 

modernization goals in an incremental approach that provides near-term value. The plan 

focuses on delivery of four major tax administration systems - Customer Account Data 

Engine, Account Management Services, Modernized e-File, and Filing & Payment 

Compliance - addressing the IRS' strategic business priorities. The plan also capitalizes 

IRS - 13
on IT infrastructure initiatives and smaller IT project initiatives to support a unified 

approach in continued improvement to program operations. 

Throughout FY 2006, IRS modernization efforts continued to focus on its four core tax 

administration systems designed to provide more sophisticated tools to taxpayers and the 

IRS employees. The following highlights the IRS’ efforts in FY 2006 in advancing these 

core systems: 

• Introduced new Customer Account Data Engine (CADE) capabilities for the 2006 

filing season. CADE supports faster refunds to taxpayers, issuing direct deposit 

refunds between one and seven days faster, and paper refunds four to thirteen days 

faster than refunds generated by the legacy system. CADE posted over 7.3 million 

returns – more than a 400 percent increase over the previous year, and issued 7 

million refunds totaling in excess of $3.4 billion. CADE improved taxpayer service 

by allowing access to account information up to seven days sooner, increasing the 

likelihood of single telephone call resolution, faster issue detection, and more 

timely account settlement. CADE is expected to post between 25 and 30 million 

returns in 2007. 

• Began the development of Account Management Services (AMS), a project that 

will enable real-time access to taxpayer account information, to support much faster 

resolution of taxpayer issues by IRS customer service representatives. AMS, in 

conjunction with CADE, will enable the IRS to break the weekly update system 

paradigm that has existed since the 1960s, enabling the IRS to begin to provide 

settlement of all account information by end-of-day, similar to what one expects 

from major private-sector financial institutions. The first release of AMS is due the 

summer of 2007 to support real-time address change capability in CADE and 

enable faster notice processing for a number of math-error notices. 

• Implemented Release 3.2 of its Modernized e-File (MeF) project, which enabled the 

filing of both federal and state returns concurrently for corporations (Forms 1120 

and 1120-S) and tax-exempt organizations (Form 990). In 2006, the MeF platform 

supported an e-filing mandate for certain large corporations and tax-exempt entities. 

Tax returns for large corporations typically include hundreds, or even thousands, of 

pages. Receiving the data electronically improves the accuracy of the tax return, 

reduces the volume of paper tax returns submitted to IRS Service Centers, and 

accelerates the examination process by having all tax return data available 

electronically. Electronic capture of return information enables the IRS to quickly 

deliver the data to analysts and agents for compliance risk assessment and action. 

In 2006, MeF accepted over 550,000 corporate returns. The IRS is expanding the 

MeF taxpayer base in 2007 to include Partnership Income tax returns (Form 1065), 

eventually enabling nearly 2.7 million small business and self-employed taxpayers 

to benefit from electronic filing. The IRS is in the planning stage to migrate the 

1040 individual tax return to the Modernized e-File platform. The development and 

implementation of MeF 1040 capability will be complete in January of 2011 with 

initial planned deployment for January, 2009. 

IRS - 14
• Completed the first release of the Filing & Payment Compliance (F&PC) strategy. 

F&PC functionality analyzes tax collection cases and separates cases that require 

direct IRS involvement from those that can be handled by Private Collection 

Agencies (PCAs). The introduction of PCAs is expected to:

o Assist the IRS by addressing the volume of delinquent taxpayers that exceeds the 

 IRS’ capacity to work, approximately 250,000 cases per year; 

o Help eliminate backlogs in the large number of outstanding tax liabilities, which 

 have grown by 118 percent over the last 12 years, increasing tax revenue and 

 reducing the tax gap; and, 

Tax administration in the 21st century requires improved IRS information technology. 

For FY 2007 and FY 2008, the IRS is committed to continuing to make improvements in 

technology, including: 

• Replacing antiquated core legacy account management systems and technology 

with the Customer Account Data Engine (CADE); 

• 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. 

Supporting the President's Management Agenda 

The FY 2008 Budget request for the IRS reflects the Department of the Treasury's 

commitment to further the objectives of the President's Management Agenda (PMA). In 

June 2006, the IRS developed an implementation plan for Budget-Performance 

Integration (BPI) that identifies the actions necessary to formulate and execute fullycosted performance and the means to determine the marginal cost of performance, 

consistent with the BPI requirements of the PMA. As part of this process, the IRS will 

initiate its plan to improve budget and performance integration using cost accounting 

pilots that focus on the interrelationship between financial data contained in the 

Integrated Financial System (IFS) and performance information (e.g., submission 

processing volume data) stored in IRS legacy systems. The cost pilots will facilitate: 

• Standardization of cost methodologies for determining and applying direct and 

indirect costs associated with performance measures; 

• Identification of additional system interfaces needed to support managerial cost 

accounting; 

• Development of a methodology for linking cost data and agency-level outcomes and 

outputs for the budget formulation and reporting process; and 

• Development of an IRS cost accounting policy. 

IRS - 15
FY 2008 Challenges 

The IRS seeks 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 use of private collection 

agencies to collect uncontested tax debt is another. In FY 2007 and beyond, the IRS will 

continue 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. 

• Business Systems Modernization (BSM): The BSM program remains on the GAO 

high-risk list and also continues to be tracked as a declared "material weakness" 

because of the national significance of the program and the expectation that recent 

program improvements must be sustained over a longer period, given the extensive 

scope and time horizon of the program. During FY 2007, the IRS will continue to 

strengthen the management processes developed as part of its corrective action plan 

to address material weaknesses and will strive to sustain improvements relating to the 

efficient and effective delivery of the IRS’ IT systems. 

• Information Technology Modernization Vision and Strategy (MV&S): This 

governance and planning process for IRS IT leverages the IRS strategic plan and 

associated business plans to drive IT investment decisions, address the priorities around 

modernizing front-line tax administration, and enable technical capabilities provided 

by the infrastructure and security. The MV&S approach will leverage existing 

systems (where possible) and new development (where necessary) to optimize 

capacity, manage program costs, leverage common IT services across business 

domains, and deliver business value in smaller and more frequently fielded 

incremental releases. The MV&S will address the business priorities for the next five 

years, with particular emphasis on informing and guiding the definition of investment 

priorities for FY 2007 through FY 2009 across all investment tiers. Using the 

MV&S approach, the IRS enterprise IT solutions demonstrate alignment with the 

Treasury Enterprise Architecture. 

• Implement Treasury’s Tax Compliance Improvement Plan: Maximizing tax 

compliance is at the heart of the IRS emphasis on enforcement. The IRS will continue 

to improve enforcement by targeting its casework and enforcement activities to deliver 

results more effectively. The IRS will continue to analyze tax information and data 

from compliance research studies to better define and quantify the tax gap. The IRS 

will use the results of these efforts to improve its ability to counter the methods and 

means of those taxpayers who fail to report or pay what they owe. The IRS is 

focusing on discouraging and deterring non-compliance with an emphasis on corrosive 

activity by corporations, high-income individual taxpayers, and other contributors to the 

tax gap. 

• Abusive Tax Shelters: Identifying and dismantling Abusive Tax Avoidance 

Transactions (ATAT) remain a challenge and a high enforcement priority for the IRS. 

These transactions are corrosive to the equity and the fairness of the tax law for all 

taxpayers. Vigorous enforcement of the criminal provisions of the tax code, coupled 

IRS - 16
with appropriate civil sanctions, materially contributes to maintaining voluntary 

compliance and public confidence in the fairness of the tax system. Tax shelter 

promoters continue to modify schemes, making it difficult to detect patterns and 

identify participants on a timely basis. Recent trends indicate that the tax shelter 

population will continue to expand to small to mid-size corporations where the issues 

will be more difficult to identify and examine. Large corporate taxpayers are 

increasingly engaging in structured transactions. These structured transactions 

involve highly complex fact patterns and large dollar issues. Promoters of tax 

shelters are migrating from the large accounting firms to other firms and businesses 

that specialize in tax shelters. These promoters are less compliant for registration and 

less stable in their business operations, making it more difficult to pursue them for 

information and for penalties. 

• Taxpayer Assistance Blueprint (TAB): The IRS remains committed to taxpayer 

service and completed Phase I of the TAB in April 2006. Phase I describes the needs 

and preferences of taxpayers, including information on how taxpayers access the IRS 

services, what services they prefer, and whether the IRS meets their needs. The 

IRS expects to complete Phase II of the project in FY 2007, and will use the results to 

better focus its taxpayer services based on taxpayer needs, preferences, and 

demands. The research resulting from the TAB will enable the IRS to help taxpayers 

to better understand the tax law and, in return, remit the proper amount of tax. 

• The Complexity of the Tax Code: The complexity of the tax code is the most 

significant problem facing taxpayers and the IRS alike. The tax code contains well 

over a million words, addressing taxpayer provisions such as the alternative minimum 

tax and the earned income tax credit. Business taxpayers must contend with a 

multitude of rules that cover the depreciation of equipment; numerous and overlapping 

filing requirements for employment taxes; and vague standards that govern the 

classification of workers as either employees or independent contractors. The IRS must 

explain the Code in a way that taxpayers can understand. 

• Achieving 80 Percent e-Filing: For the 2006 filing season the IRS received 72.8 

million electronically-filed returns, a 6.6 percent increase over the previous year. 

Report language accompanying the FY 2007 Transportation, Treasury, the Judiciary, 

Housing and Urban Development Appropriation acknowledges that most experts 

realize that the IRS will not meet the original goal of 80 percent e-filing by 2007. The 

Appropriators, therefore, direct the IRS to develop a detailed plan by June 2007 on 

how to reach the 80 percent e-filing goal. 

IRS - 17
Section 2 – Budget Adjustments & Appropriations Language 

The Internal Revenue Service (IRS) budget request for FY 2008 is $11,095,499,000 in 

direct appropriations and 92,118 FTE. This is an increase of $657,135,000 or 6.3 

percent, and 400 FTE, over the FY 2007 Continuing Resolution (CR) rate of 

$10,438,364,000 and 91,718 FTE. The CR rate includes proposed interappropriation 

transfer corrections to budget restructure from Taxpayer Service ($12,243,000) and 

Enforcement ($47,833,000) to Operations Support ($60,076,000). 

Program Summary by Appropriations Account and Budget Activity 

Internal Revenue Service 

FY 2006 FY 2007 FY 2007

Appropriation Enacted

President's 

Budget CR-rate

President's 

Budget

 $ Change 

over CR-rate

% Change 

over CR-rate

Taxpayer Services $2,142,042 $2,079,151 $2,046,908 $2,103,089 $56,181 2.74%

 Pre-filing Taxpayer Assistance and Education 577,425 575,694 556,693 578,078 21,385 3.84%

 Filing and Account Services 1,564,617 1,503,457 1,490,215 1,525,011 34,796 2.33%

Enforcement 4,708,441 4,797,126 4,660,572 4,925,498 264,926 5.68%

 Investigations 579,555 591,090 579,883 602,872 22,989 3.96%

 Exam and Collections 3,919,275 4,054,760 3,932,599 4,165,233 232,634 5.92%

 Regulatory 209,611 151,276 148,090 157,393 9,303 6.28%

Operations Support 3,461,205 3,488,404 3,519,228 3,769,587 250,359 7.11%

 Infrastructure 864,403 873,146 873,146 908,095 34,949 4.00%

 Shared Services and Support 1,176,202 1,129,617 1,163,846 1,223,351 59,505 5.11%

 Information Services 1,420,600 1,485,641 1,482,236 1,638,141 155,905 10.52%

Business Systems Modernization 242,010 212,310 196,810 282,090 85,280 43.33%

Health Insurance Tax Credit Administration 20,008 14,846 14,846 15,235 389 2.62%

Total Appropriated Resources $10,573,706 $10,591,837 $10,438,364 $11,095,499 $657,135 6.30%

Dollars in Thousands

Table 1.1

FY 2008

IRS - 18
Appropriation Detail Table 

Internal Revenue Service 

FY 2007 FY 2007 

President's Budget CR-rate

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Taxpayer Services 32,050 $2,142,042 31,386 $2,127,458 30,891 $2,079,151 30,597 $2,046,908 30,160 $2,103,089 -1.43% 2.74%

Enforcement 49,534 4,708,441 48,439 4,675,795 48,869 4,797,126 47,833 4,660,572 48,667 4,925,498 1.74% 5.68%

Operations Support 13,468 3,461,205 11,565 3,438,385 12,942 3,488,404 12,954 3,519,228 12,957 3,769,587 0.02% 7.11%

Business Systems Modernization 317 242,010 317 158,702 317 212,310 317 196,810 317 282,090 0.00% 43.33%

Health Insurance Tax Credit Administration 17 20,008 10 19,993 17 14,846 17 14,846 17 15,235 0.00% 2.62%

Subtotal New Appropriated Resources 95,386 $10,573,706 91,717 $10,420,333 93,036 $10,591,837 91,718 $10,438,364 92,118 $11,095,499 0.44% 6.30%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable 1,350 $158,820 1,129 $89,857 682 $125,723 682 $125,723 696 $133,498 2.05% 6.18%

50% Carryover 23,418

Mandatory Appropriations - User Fees 19,000 19,000 242,000 242,000 180,000 -25.62%

Available multi-year/no-year funds 169,006 143,057 143,282 143,282 149,135 4.08%

Transfers In/Out 37

Subtotal Other Resources 1,350 $346,826 1,129 $275,369 682 $511,005 682 $511,005 696 $462,633 2.05% -9.47%

Total Resources Available for Obligation 96,736 $10,920,532 92,846 $10,695,702 93,718 $11,102,842 92,400 $10,949,369 92,814 $11,558,132 0.45% 5.56%

FY 2006

Table 3.1

Obligations President's Budget

Dollars in Thousands

Enacted over CR-rate

% Change

Resources Available for Obligation

FY 2006 FY 2008

IRS - 19
Summary Budget Adjustment Table 

Internal Revenue Service 

FTE Amount

FY 2007 President's Budget 93,036 $10,591,837

CR-rate Adjustment (1,318) (153,473)

(1,184) ($119,981)

(1,184)

($6,479)

(6,479)

FY 2007 CR-rate 91,718 $10,438,364

Interappropriation Transfer Corrections to Budget Restructure 0 0

FY 2007 Operating Plan at CR-rate 91,718 $10,438,364

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $27,573

Base Adjustment 0 27,573

Maintaining Current Levels (MCLs) $340,007

Pay Annualization 0 40,484

Pay Inflation Adjustment 0 232,630

Non-Pay Inflation Adjustment 0 $66,893

Efficiency Savings

Subtotal, Changes to Base $247,599

FY 2008 Base 90,534 $10,685,963

Program Changes:

Program Decreases/Savings: 0

Increased e-File Savings 0

Program Reinvestments: 0 $6,479

Increase Efficiency through Submission Processing Site Consolidations 6,479

Program Increases:

Infrastructure Initiatives 0 $143,149

Upgrade Critical IT Infrastructure 0 60,000

Enhance Computer Security Incident Response Center (CSIRC) and Network Infrastru 0 21,000

Fund Business Systems Modernization 0 62,149

Enforcement Initiatives 1,530 $246,387

Improve Compliance Estimates, Measures, and Detection of Non-Compliance 258 41,022

Improve Compliance Among Small Business and Self-Employed Taxpayers 485 73,165

Implement Legislative Proposals to Improve Compliance 0 23,045

Increase Compliance for Large Multinational Businesses 158 26,200

Expand Document Matching in Existing Sites 214 27,958

Establish New Document Matching - Kansas City 208 23,453

Increase Individual Filing Compliance 61 6,544

Increase Tax-Exempt Entity Compliance 109 15,000

Increase Criminal Tax Investigations 37 10,000

Taxpayer Service Initiatives 54 $20,000

Research Effect of Service on Taxpayer Compliance 8 5,000

Expand Volunteer Income Tax Assistance 46 5,000

Implement Taxpayer Assistance Blueprint 0 10,000

Subtotal, FY 2008 Program Changes 1,584 $409,536

Total, FY 2008 President's Budget Request 92,118 $11,095,499

Appropriation: Internal Revenue Service

Table 2.1

FY 2008 Budget Highlights

Dollars in Thousands

IRS - 20
2A – Budget Decreases and Increases Description (IRS) 

Total Changes to Base +247,599,000 / -1,184 FTE 

Technical Adjustments to FY 2007 Base Due to CR 

+$27,573,000 / 0 FTE

An increase of $27.6 million is included as a technical adjustment to the FY 2007 base. 

This adjustment restores $21.9 million for BSM labor and projects and $5.7 for Operations 

Support infrastructure. 

Maintaining Current Levels (MCLs)

+$340,007,000 / 0 FTE 

Funds are requested for the FY 2008 costs of the annualization of the FY 2007 federal 

pay raise in FY 2008; the proposed FY 2008 federal pay raise; and other labor-related 

benefits; and non-labor related items such as contracts, travel, supplies, equipment, 

postage, and GSA rent. 

Efficiency Savings

 -$119,981,000 / -1,184 FTE

The IRS has identified organizational changes designed to increase operating efficiencies 

and reduce costs for FY 2008. 

In the enforcement programs, the IRS will realize a savings of $82.3 million and 643 FTE 

as a result of efficiency improvements. Savings will be achieved through enhancement of 

technology and support structure improvements such as deployment of the Electronic 

Installment Agreements (e-IA) system and expansion of the auto-generated notice 

initiative; streamlining and centralizing work process such as consolidating the number of 

Criminal Investigation Lead Development Centers from five to two, and expanding and 

improving implementation of the Fast Track Settlement (FTS) process (resolution of 

disputes during the examination phase rather than waiting for the appeal phase); and 

implementation of new work tools such as improved audit selection formulas. In 

addition, the completion of initial training programs by both examination and collection 

FY 2006 enforcement hires will increase efficiency by transitioning them and their 

trainers to full-time front-line activities. 

In the taxpayer service program, the IRS will realize a savings of $37.7 million and 541 

FTE. Increases in electronic filing will continue to have a significant impact on the 

Submission Processing Centers as individual paper return volumes decrease. The IRS 

will continue to achieve savings as the processing of paper returns is consolidated into 

fewer Submission Processing Centers. Additional savings will be gained through the 

implementation of technological improvements such as automating the issuance of 

Employer Identification Numbers and implementation of the Taxpayer Assistance 

Blueprint study recommendations. 

IRS - 21
Total FY 2008 Program Changes +$409,536,000 / +1,584 FTE 

Program Decreases/Savings -$6,479,000 / 0 FTE 

Increased e-File Savings

- $6,479,000 / 0 FTE 

This reduction is a result of savings from a projected decrease in FY 2008 of 

4.2 million (3.7 million individual and 0.5 million business) paper returns filed. Starting 

in FY 2007 and continuing through FY 2008, the IRS will ramp down the Philadelphia 

Submission Processing Center, generating savings of $6.5 million. The savings will be 

reinvested under the Increase Efficiency through Submission Processing Site 

Consolidations initiative to fund anticipated severance pay costs in FY 2008. 

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

electronically for FY 2004 – FY 2010 for individual and business returns. 

Measure FY 2004 

Actual 

FY 2005 

Actual 

FY 2006 

Actual 

FY 2007 

Plan 

FY 2008 

Estimate 

FY 2009 

Estimate 

FY 2010 

Estimate 

Percent of 

Individual 

Returns 

Processed 

Electronically 

46.5 51.1 55.0 57.0 61.6 64.5 67.0 

Percent of 

Business 

Returns 

Processed 

Electronically 

17.4 17.8 17.8 19.5 21.2 23.6 25.2 

The IRS continues to strive to meet the established goal of 80 percent of all tax returns to 

be filed electronically. While the IRS has implemented several technological advances, 

such as modernizing the 1040 e-File system, projections show that the 80 percent e-File 

goal will not be met in FY 2007. As the IRS moves toward its strategic goal to improve 

taxpayer service by expanding options for electronic filing, payments, and 

communications, additional improvements in technology will be used to increase e-File 

marketing strategies to meet this goal in the future. However, without additional 

mandates to file electronically, such as the one recently imposed for corporations, the 

IRS’ ability to meet the electronic filing goal will remain a challenge. The Budget 

includes a proposal to expand the IRS’ authority to require electronic filing by 

corporations (see the Receipts chapter on the Analytical Perspectives volume of the 

Budget for legislative proposals). 

IRS - 22
Program Reinvestments +$6,479,000/ 0 FTE 

Increase Efficiency through Submission Processing Site Consolidations

+$6,479,000 / 0 FTE

This initiative provides $6.0 million to fund severance pay for employees separating as a 

result of ramp down of the Philadelphia Processing Center and $0.5 million for shared 

support service related costs. However, the IRS will maintain a large staff of service and 

enforcement personnel in Philadelphia. 

Increased electronic filing will continue to have a significant impact on Submission 

Processing Centers as individual paper return volumes decline. Individual paper returns 

are expected to decrease by 4.2 million in FY 2008. As a result, the IRS will continue its 

initiative to consolidate the processing of individual paper returns into fewer Submission 

Processing sites. The Philadelphia Submission Processing Center is undergoing a ramp 

down in FY 2007 and FY 2008. The total costs for severance pay associated with the 

Philadelphia ramp down totals $8,174,774. However, the estimated severance pay 

amount needed in FY 2008 is $5,967,585. This initiative is a direct reinvestment of the 

Increased e-File Savings initiative. 

The total severance pay costs for the Philadelphia Processing Center ramp down are 

broken down by position type and projected on-rolls numbers in the following table: 

Work As of Oct. Placed Estimated 

Schedule 2002 Internally Severence

Analysts PERM 29 29 9 20 $876,940

Cash Clerks PERM 41 29 0 29 $403,897

SEAS 106 62 0 62 $86,575

Clerks PERM 203 108 60 48 $482,775

SEAS 702 315 120 195 $264,892

Data Transcribers PERM 43 22 2 20 $272,104

SEAS 1,198 402 0 402 $501,007

Department Mgr. PERM 14 14 0 14 $691,957

SEAS 1 1 0 1 $0

Front-line Mgr. PERM 64 51 14 37 $998,004

SEAS 22 14 0 14 $129,993

Other PERM 19 15 2 13 $101,566

SEAS 20 17 0 17 $37,085

Secretaries PERM 40 36 20 16 $361,843

Senior Mgr. PERM 10 10 0 10 $1,172,422

Tax Examiners PERM 263 212 164 48 $1,070,281

SEAS 944 677 205 472 $723,433

3,719 2,014 596 1,418 $8,174,774

726 526 271 255 $6,431,789

2,993 1,488 325 1,163 $1,742,985

3,719 2,014 596 1,418 $8,174,774

By Oct. 2006 Remaining

TOTAL

TOTAL

Permanent Employees

Seasonal Employees

Employee Category

IRS - 23
The remaining $511,000 for FY 2008 is for Agency-Wide Shared Services (AWSS) costs 

in Philadelphia and Andover, as follows: 

• Philadelphia - $125,000 for redistribution and disbursement of existing furniture and 

equipment and $285,000 for dismantling and removing double-deck shelving 

systems. 

• Andover – $101,000 for redistribution/disbursement of existing furniture and 

equipment. 

This initiative supports the IRS’ operational priority to optimize and implement planned 

Submission Processing strategies, including the downsizing of paper operations to meet 

customer increases in electronic submissions and cost efficient opportunities in working 

the remaining paper workload. Returns processing efficiency will be improved. The 

workforce will be aligned to new priorities and technologies. The ramp down and 

consolidation of the Philadelphia Submission Processing sites will not impact taxpayers. 

Program Increases +$409,536,000 / +1,584 FTE 

Infrastructure Initiatives 

Upgrade Critical IT Infrastructure 

+$60,000,000 / 0 FTE

This initiative requests $60 million to reduce the backlog of IRS information technology 

(IT) equipment that has exceeded its life cycle. This initiative will provide the resources 

needed to keep IRS IT and telecommunications equipment operable and to current 

business standards. Failure to replace the IRS’ IT infrastructure will lead to increased 

maintenance costs and will increase the risk of disrupting business operations. Currently, 

critical business systems are operating on aged and outdated hardware, with the backlog 

of aged infrastructure increasing every year. Without an effective infrastructure, the risk 

to tax administration is significant. The question facing the IRS is not “if mission-critical 

components of the infrastructure will break,” but “what will break, when, and how 

significant will the impact be on tax administration?” 

The IRS faces a significant challenge with an aged and ineffective IT infrastructure. Two 

key challenges are: (1) a backlog of aged inventory, and (2) continued aging of the 

existing inventory. 

 

To address the growth in aged inventory, the IRS has committed to reserve another 

$135 million from its base budget for infrastructure replacement over the next three 

years. In FY 2006, the IRS identified efficiencies in the base IT budget that permitted the 

permanent reallocation of $45 million into the infrastructure base. The IRS plans to 

augment this funding with additional reallocations of $45 million in both FY 2007 and 

2008. By FY 2008, the IRS plans to have established a base budget for infrastructure 

IRS - 24
replacement equal to $180 million, which will mitigate the impact of rapid growth in 

aged inventory, but will not address the backlog of aged infrastructure. 

Planned expenditures in FY 2008 include, but are not limited to, the following: 

• Replacing Aged Computers – A significant component of this initiative includes aged 

infrastructure of employee workstations (e.g., desktop and laptop computers). The 

IRS estimates that over 50% of the laptop computers supporting Compliance 

employees are overage and need replacement. This overage equipment results in (1) 

increased down time; (2) reduced capability to communicate effectively; and (3) 

delays in retrieval of taxpayer data that is vital to daily compliance/enforcement 

activities. 

• Automated Call Distributor (ACD) Hardware – ACD hardware routes incoming and 

outgoing telephone calls to taxpayer assistance agents, operating as the electronic 

heart of the IRS call centers. Failed hardware could result in incoming taxpayer calls 

being routed improperly or dropped. 

• Prioritized Mission Critical Servers – Critical tax processing applications and 

solutions are currently operating on aged servers, with this problem worsening by 

2008. Failed hardware has recently resulted in permanent loss of business data as 

well as work stoppage of fundamental business processes. 

• WAN/LAN Routers and Switches – Routers and switches support not only IRS 

personal computer and laptops, but the data communication between systems. Failed 

WAN/LAN hardware can lead to poor application performance or communication 

shutdown, causing taxpayer information not being routed to the next step, or agents 

not being able to retrieve tax records in a timely manner. 

Enhance Computer Security Incident Response Center (CSIRC) and Network 

Infrastructure Security 

+$21,000,000 / 0 FTE

This initiative provides $13.1 million to fund enhancements for the Computer Security 

Incident Response Center (CSIRC). This will enable the IRS to keep pace with the everchanging security threat environment through increased detection and analysis capability, 

improved forensics, and the capacity to identify and respond to potential intrusions before 

they occur. 

The number of vulnerabilities (software flaw or configuration weakness) are rapidly 

increasing each year. These security vulnerabilities expose enterprise systems and 

processes to unnecessary risk of potential intrusions or unauthorized access, 

compromise/disclosure of sensitive taxpayer data, and/or disruption of service and 

process availability. Potential impacts include: 

• The disclosure of taxpayer data or disruption of electronic filing initiatives could have 

a crippling effect on the IRS mission and the taxpayers. 

IRS - 25
• Cyber-security breach could have a significant adverse impact on the IRS’ 

enforcement activities. A major incident could result in a significant disruption to 

enforcement efforts, costing numerous days of recovery efforts and inability to detect 

and protect IRS systems from cyber worms, such as the Sasser worm outbreak in 

2004, which resulted in a direct IRS business loss of more than $50 million. 

This initiative will mitigate these by employing additional security safeguards, using 

defense-in-depth, best-of-breed security technologies. This funding will establish a 

foundation to preemptively mitigate such risk in Modernization Project Support, Voice 

Over Internet Protocol, E-Filing, E-Commerce, adherence to the E-Gov initiative, the 

President's Management Agenda, Virtual Office, maintaining distinct network 

environments, TIGTA/OMB audits/recommendations, and support to FISMA 

compliance. 

In addition, this initiative includes $7.9 million to enhance network infrastructure 

security. These funds will provide the IRS capability to perform continuous monitoring 

of the security of operational systems, using security tools, tactics, techniques and 

procedures to perform network security compliance monitoring of all IT assets on the 

network. This will ensure all systems have the latest security patches and are in 

compliance with security configuration control requirements. 

Fund Business Systems Modernization

+$62,149,000 / 0 FTE

This initiative requests an additional $62.1 million to continue the development and 

deployment of the IRS modernization program in line with the Modernization Vision and 

Strategy (MV&S) recommendations. This increase will result in a total budget request 

for BSM of $282.1 million in FY 2008, and will allow the IRS to make progress on the 

following modernization projects: 

Customer Account Data Engine (CADE) 

• The IRS requests $58.5 million for CADE. CADE is IRS’ lynchpin 

modernization project replacing the antiquated master file. These master files are 

based on flat files with weekly updates achieved by batch processing of a 

sequential file repository. As a result, it takes the IRS two weeks to update 

taxpayer tax accounts. This performance 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. 

 

The master file system, based on 1960s architecture, uses programming language 

no longer taught or used elsewhere. That, coupled with the lack of system 

documentation, puts continued maintenance and updating of the master files at 

risk. Other downsides to the current master file system include high maintenance 

and operational costs, difficulty implementing policy or tax law changes, and 

IRS - 26
incompatibility with private industry and other government agencies’ systems, 

which limits IRS’ ability to partner with other parties and prevents electronic data 

exchanges. CADE will solve these problems. The IRS is developing CADE in 

stages and expects to be able to retire the Individual Master File in 2012. When 

fully operational, the CADE database will house tax information for more than 

200 million individual and business taxpayers’ returns. In FY 2008, 

$58.5 million will continue work on the CADE release content master plan. 

Account Management Services (AMS) 

• IRS is requesting $28.983 million for the Account Management Services Project 

(AMS). The initiative provides a Common User Interface for access and update 

of taxpayer accounts managed by CADE and the Individual Master File, 

Corporate Files on Line, and the Integrated Data Retrieval System. It will provide 

an enterprise-enabled inventory workflow capability (including referrals, assign, 

review, and audit) across operating divisions. Specific capabilities include the 

access and update of both legacy and CADE account information, account 

monitoring, management of activity history (Case History), and the generation of 

notices. AMS will provide immediate access to integrated account data, which 

improves the ability to resolve account inquiries with minimal taxpayer 

interaction and facilitates the taxpayer’s ability to self assist or self correct. AMS 

will allow IRS staff to create new accounts online at the request of a taxpayer. 

Also, it will assess taxpayers’ account status, trigger actions, and generate notices 

or letters based on selected queries.

A Schematic Showing Where CADE and AMS fit in the Taxpayer Data Flow 

Returns, 

Payments

Correspondenc

e

Post, Settle

Accounts Integrated Data 

Retrieval System

Capture 

Data

From Paper

Weekly

Daily Daily

Daily/

On Demand

Weekly Weekly

Customer Service Systems

Collection Systems

Master

Files

Taxpayer (Telephone & Correspondence)

Revenue

Accounting

Financial

Reporting

Treasury, GAO

Submissions Processing

Paper

Active Accounts

Taxpayer Account (10%)

Processing

(Computing Center)

Electronic 

Returns, Payments

Correspondence

Electronic 

Receipt of

Submissions

Validate &

Perfect

Data

Examination Systems

Corporate Files

On-Line

IDRS Database with 

replicated & new data

Daily

Daily/Weekly &

On Demand

Daily/

On Demand

Workflow, Work Management, Case Management, Pending 

Updates Customer Communications

Customer Account Data Engine

(CADE)

Account 

Management Services

• Post Transactions (tax 

assessments, payments, 

interest, penalty, 

extensions, bankruptcy, 

address changes, etc.

• Issue Refunds

• Identify Account Issues

• Generate Notices

• Financial balance and 

controls

• On-Line tools to view and 

update taxpayer data 

(adjustments, transfer 

money, apply credits, and 

do other updates to taxpayer 

accounts)

• Record activity history

• Monitor Account for follow 

up activity

• Compose and print notices

• Generate Notices

Taxpayers

Taxpayer 

Accounts

Tax 

Returns

Case / 

Activity

History

CADE applications 

update and maintain 

complete, timely and 

accurate information 

about the taxpayer, their 

accounts, and tax 

returns. This information 

is available for on 

demand access and 

update.

IRS - 27
Modernized e-File 

• In FY 2008, the IRS is requesting $55.802 million to fund the development of the 

1040 on the Modernized e-File (MeF) platform. The development and 

implementation of the MeF 1040 will take two years. MeF is the future of 

electronic filing. It provides a single XML-based standard for filing electronic tax 

returns. Standardizing the formats/structures for all filings will allow transmitters 

to submit multiple return types (such as 1120 and 941s) in the same transmission, 

something that restrains e-file growth currently. Tax return data will be stored in 

XML format in a modernized Tax Return Database with web-based access, 

allowing all viewers of the data to use their internet browser to view the entire tax 

return online, and it will look just like the paper document. 

Common Services Projects 

• The IRS is requesting $16 million for the introduction of the Common Services 

Projects (CSP), providing funding for new portals, which are technology 

platforms that meet many IRS business needs through web-based front-ends and 

provide secure access to data, applications, and services. 

 

The portals are mission-critical components of the enterprise infrastructure 

required to support key business processes and compliance initiatives. A new 

portal infrastructure must be acquired and fully operational, with all applications 

transitioned before November 2008. The contracts for the existing portals 

(registered user portal, employee user portal, and public user portal/IRS.gov) 

expired in May 2006 and sole-source extensions have been approved, with the 

provision that the current portals will be replaced by November 2008. The IRS 

portals support Underreporter initiatives in the Examination and Criminal 

Investigations programs; and Underpayment initiatives in Collection; Modernized 

E-file; and other E-Government, E-services, and user fee initiatives. The current 

portals, designed in the late 1990s and implemented in 2000 and 2001, are 

outdated; capacity is limited; and 90 percent of the hardware components and 

70 percent of software products supporting the current portals have reached or 

exceeded their useful life. 

Funds for CSP cover the costs of program/contract management; design and 

engineering for the new portal environment; planning and testing of new portalrelated application projects and modification of existing projects (E-services, 

E-file, Integrated Financial System, Internet Refund/Fact of Filing, etc.) to run on 

the new portals; new portal security mechanisms for access control, intrusion 

detection, identity management, auditing; and acquisition of new portal 

development, test and production environments. 

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. 

IRS - 28
The program combines best practices and expertise in business solutions and 

internal management from IRS, business, and technology sectors to develop a 

world-class tax administration system. The BSM program has made sustained 

progress in realizing substantial segments of the modernization vision. 

The IRS will work to allocate BSM staffing costs for the FY 2009 President’s 

 Budget. 

Enforcement Initiatives 

Improve Compliance Estimates, Measures, and Detection of Non-Compliance 

+$41,022,000 / +258 FTE

This initiative funds research studies of reporting compliance for new segments of 

taxpayers (such as partnerships, corporations, other business entities, exempt 

organizations, and government entities), and updates existing estimates of reporting 

compliance (individual taxpayers and S-corporations). This initiative establishes a base of 

operating division examiners for various reporting compliance studies, based on the 

needed expertise for the study. Unlike in the past, these examiners will conduct an 

annual study of compliance among 1040 filers based on a smaller sample size than the 

2001 National Research Program study. This will provide some fresh compliance data 

each year, and by combining samples over several years will provide a regular update to 

the larger sample size needed to keep IRS’ targeting systems and compliance estimates 

up to date. 

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

specific areas of non-compliance and improve voluntary compliance. Efforts under this 

initiative will significantly help improve the allocation of resources by providing data that 

will allow the IRS to target audits toward taxpayers who are least compliant with the tax 

law. This initiative will increase enforcement revenue and also help improve voluntary 

compliance. Moreover, the initiative will enable IRS to undertake reporting compliance 

studies in the tax-exempt sector, which is responsible for about one-quarter of overall 

employment. This initiative benefits taxpayers by increasing the fairness of the tax 

system and significantly improving workload selection formulas that reduce the burden 

of unnecessary taxpayer contacts. Ultimately, these efforts will provide benchmarks 

against which the IRS can evaluate the effectiveness of programs designed to improve 

compliance and will allow the IRS to better leverage enforcement resources. 

Improve Compliance Among Small Business and Self-Employed Taxpayers 

+$73,165,000 / +485 FTE

This initiative will improve compliance among Small Business and SelfEmployed (SB/SE) taxpayers in the elements of reporting, filing, and payment 

compliance. This request will produce $144 million in additional annual 

enforcement revenue, once the new hires reach full potential in FY 2010, by increasing 

IRS - 29
audits of high-risk tax returns, collecting unpaid taxes from filed and unfiled tax returns, 

and investigating, and where appropriate, prosecuting, persons who have evaded taxes. 

For Tax Year 2001, the gross tax gap is estimated to be $345 billion (net $290 billion), 

16 percent of the $2.1 trillion in total tax liability. Of that amount, 75 percent, or 

$259 billion, is attributable to SB/SE taxpayers. Underreporting accounts for 82 percent 

of the total tax gap, with the remainder almost evenly divided between non-filing (eight 

percent) and underpaying (ten percent). 

High-risk areas of under-reporting include abusive tax schemes, flow-through income, 

and high-income individuals. Approximately 98 percent of all flow-through filings 

(S-corporations, partnerships, and trusts) are SB/SE taxpayers. All flow-through filings 

increased from 9.1 million in Tax Year 2000 to nearly 9.4 million in Tax Year 2003, and 

are expected to reach 10.4 million by Tax Year 2006 – a 14 percent increase since Tax 

Year 2000. The IRS projects them to increase by 20 percent by Tax Year 2012. 

Increasing examinations of and improving reporting for these filings is a critical 

component of addressing the tax gap. 

Revenue Agents will continue to focus on Abusive Tax Avoidance Transactions 

(ATAT), structured transactions, and corporate and high-income examinations involving 

flow-through entities (i.e., trusts, partnerships, S-corporations). With this funding in 

FY 2008, 207 field examination staff will examine an additional 3,100 individual returns 

and 430 additional business returns, generating approximately $26.4 million. The IRS 

anticipates that an additional 5,400 business returns and 36,500 individual returns will be 

examined through FY 2012. 

Collection activities will increase both the number of high-risk unpaid assessment 

accounts settled and their involvement in the collection of taxes due from abusive trusts. 

Field Collection staff (149 Revenue Officers will produce an estimated 23,000 additional 

tax delinquent accounts (TDA) in FY 2008, and approximately 113,000 through 

FY 2012. For the non-filers, these Revenue Officers will produce an estimated 5,300 tax 

delinquency investigations (TDI) in FY 2008 and approximately 24,000 through 

FY 2012. 

Detecting and investigating money laundering activity is an important part of tax 

compliance for the IRS. This initiative provides $5.4 million to strengthen enforcement 

activities of the anti-money laundering provisions of Bank Secrecy Act (P.L. No. 92-508) 

(BSA) and the USA PATRIOT Act (P. L. No. 107-56). Frequently, money-laundering 

violations are the only possible means to detect tax evaders. Fraud/BSA resources (33 

RAs), dedicated to the BSA program, will conduct approximately 390 additional Title 

31 cases in FY 2008, with an additional 2,900 cases examined through FY 2012. 

Approximately 252 additional Section 8300 cases (i.e., examination of an entity’s records 

to determine whether or not they have properly filed the Form 8300 for receipt of cash in 

excess of $10,000 in one transaction), will be examined in FY 2008, with an 

additional 1200 cases examined through FY 2012. 

IRS - 30
This initiative also provides key resources needed to support the increased case workload 

generated from this initiative: 

• Appeals (24 FTE and $3.2 million) to process additional cases generated from 

increased examination program and collection program staffing. 

• Taxpayer Advocate Service (31 FTE and $2.4 million) to support both examination 

and collection functions to ensure that the IRS follows appropriate procedures 

without creating unnecessary burden or compromising taxpayer rights. 

• Counsel (18 FTE and $2.7 million) to provide legal advice and assistance in litigating 

the increased number of cases as well as support additional tax shelter litigation, 

published tax shelter guidance, and small businesses’ need for tax reform related 

work. 

The return-on-investment (ROI) for this initiative is expected to be 2.5 once the new hires 

reach full potential in FY 2010 (see chart below.) 

R educe T ax Gap A mo ng Small B usiness

and Self-Emplo yed T axpayers

Costs, Revenues Collected, and Returned on Investment

(Dollars in M illions)

$57.2 $57.2 $63.0

$95.7

$144.0

$73.2

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

FY 2008 FY 2009 FY 2010

Costs Revenue

0.9 t o 1

1.7 t o 1

2.5 t o 1

NOTE: The initiative will improve voluntary compliance by providing a more 

effective deterrent. The chart depicts only direct enforcement revenue. 

In addition, this initiative will yield: 

• Greater coverage of high-risk, SB/SE examination and collection cases; 

• Strengthened integrity of the tax system; 

• Improved reporting, payment, and filing compliance from the small business 

community; and 

• Mitigation of the adverse impact of employee attrition on achieving Strategic Human 

Capital Goals. 

IRS - 31
This initiative will also yield the following benefits to taxpayers: 

• Enable taxpayer accounts to be resolved more efficiently and timely, reducing 

accumulated penalties and interest on unpaid assessments; 

• Improve customer satisfaction by holding high-risk taxpayers accountable for tax 

law compliance and assuring Americans that more taxpayers are paying their fair 

share; and 

• Improve voluntary compliance as taxpayers perceive increased fairness in the tax 

system. Taxpayers appreciate the value of enforcement. Some 86 percent of taxpayers 

surveyed by the Oversight Board answered that it was “not at all” acceptable to cheat 

on one’s taxes. 

Implement Legislative Proposals to Improve Compliance 

+$23,045,000 / 0 FTE

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

and using traditional methods of enforcement, the FY 2008 President’s Budget includes 

several legislative proposals that would yield $29 billion over ten years from improved 

compliance. These proposals would expand information reporting, improve compliance 

by businesses, strengthen tax administration, and expand penalties (see Receipts in the 

Analytical Perspectives volume of the 2008 President’s Budget). This enforcement 

initiative includes funding for purchasing software and making modifications to the IRS’ 

IT systems necessary to implement these legislative proposals. The Budget includes 

sixteen proposals but the explanation below focuses only on the proposals where 

implementation of funding is needed in FY 2008. 

Payment Card Reporting: 

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 

income for 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 gross 

receipts. Under this proposal, the IRS would require payment card processors to annually 

report total reimbursements paid to businesses for goods and services. The reported 

amount would then be compared to gross receipts reported by taxpayers 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. 

IRS - 32
The IRS anticipates that this proposal will help reduce the tax gap in two ways. First, 

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. Second, businesses that continue to abrogate their responsibilities as taxpayers 

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. 

Government Payment: 

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. 

Obviously, it is a major concern any time an entity does business with the government, 

receives payment from the government, and yet fails to pay taxes due to the government. 

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 three 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, 2008. 

If the Administration’s proposal, 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 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: 

Underreporting of income where there is little or no information reporting contributes to 

approximately 53.9 percent of the underreporting portion of the tax gap. Under current 

law, businesses are not required to issue Forms 1099 for services provided by 

corporations. Although the reporting requirements for corporations could be expanded 

by changing the regulations, Treasury recommends it be changed legislatively. 

IRS - 33
Implementation of this proposal will increase the number of Forms 1099 filed. Voluntary 

compliance is expected to increase for corporate reporting of 1099 amounts. 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 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 that 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. 

Expanded Broker Information Reporting:

Sales of property and collectibles done via auction brokers and consignment sellers 

represent a portion of the tax gap. A broker who is an auctioneer or operates a 

consignment business, whether electronic or at a physical retail location, would be 

required to make an information return showing customer name, address, and Taxpayer 

Identification Number, as well as gross proceeds from the sale of tangible personal 

property. The requirement would apply only with respect to a customer for whom the 

broker has handled 100 or more separate transactions generating at least $5,000 in gross 

proceeds in a year. There would be an exception from the proposed requirement (and the 

sale would not be taken into account for the 100 transactions/$5,000 gross proceeds test) 

if the sale is required to be reported by other information return requirements (such as 

payment card sales the gross proceeds of which would be reported through the payment 

card payment system). 

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) provides little incentive 

to increase compliance. This proposal, will enhance compliance in this area by 

increasing the penalty amount and eliminate the cap to increase the cost of doing business 

for perpetual offenders. The penalty will be increased to $150/$250 for each unfilled 

return. 

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 - 34
Provide IRS with Access to 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 

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 non-compliant taxpayers, and 

identification of levy sources. Expanded IRS access to NDNH data will increase 

productivity and enhance compliance. 

Increase Compliance for Large Multinational Businesses

+$26,200,000 / +158 FTE

This initiative will increase examination coverage for large, complex business returns; 

foreign residents; and smaller corporations with significant international activity. The 

initiative addresses risks arising from the rapid increase in globalization, and the related 

increase in foreign business activity and multi-national transactions where the potential 

for non-compliance is significant in the reporting of transactions that occur across 

differing tax jurisdictions. Additionally, flow-through filings and the use of special 

purpose entities, for both non-tax and tax-related reasons, continue to increase. 

Additional compliance resources will increase coverage for these areas of risk and reduce 

corporate and individual underreporting. An increase in examination coverage and IRS 

presence has a positive impact on overall compliance levels. With this initiative, coverage 

for large corporate and flow-through returns will increase to 8.2 percent in FY 2008 from 

a level of 7.9 percent without the initiative. 

Impact of Enforcement Initiative and Partial Reinvestment of Efficiencies 

Corporate > $10M and Flow-Throughs

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

2007 2008 2009 2010 2011

Fiscal Year

Closed Returns

Revised

Baseline (4917

FTE)

Revised initiative

(4909 FTE)

Audit Coverage Rate

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

2007 2008 2009 2010 2011

Fiscal Year

Audit Coverage

Revised Baseline

(4917 FTE)

Revised initiative

(4909 FTE)

IRS - 35
There are multiple issues, patterns, and indicators of risk for these complex flow-through 

enterprises and multi-national taxpayers: 

• Flow-through filings (Form 1120S, U.S. Income Tax Return for an S-corporation, and 

Form 1065, U.S. Return of Partnership Income) have increased 40 percent, from 

about 77,800 filings in 2000 to 109,300 in 2004. 

• Flow-through returns now comprise approximately 63 percent of the Large and 

Midsize Business return population. 

• Flow-through challenges for tax administration include savings in federal tax without 

economic substance to transactions; artificially-inflated bases to disguise real gains; 

basis shifting between related entities for tax advantages, contrary to valid accounting 

and tax practices; structured financial transactions within complex enterprises, 

including the use of Special Purpose Entities; transfer of high-value/low-basis assets 

in partnerships; aggressive interpretation of business purpose; and transfer pricing. 

• Globalization is increasing. 

• U.S. multi-national overseas profits are significantly higher than profits posted by 

U.S. companies at home. 

• Sixty percent of world trade is transacted between different arms of multi-nationals. 

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

U.S. multi-nationals. 

• From 1999 to 2004, the amount of Foreign Tax Credit (FTC) claimed increased 

31 percent to $45 billion. The largest returns account for over 93 percent of the total 

FTC claimed for the years 1999-2004. 

• The number and value of cross-border mergers and acquisitions are growing. In 

2005, 11,000 deals were set up with a value of $1.2 billion. 

• The tax issues arising from businesses operating world-wide include Transfer Pricing; 

Foreign Tax Credit; Worthless Stock Deduction; Avoidance of Subpart F Income; 

Valuation Issues; Transfer of Property (tangible and intangible) and income streams; 

Potential Tax Shelters; and Dual Consolidated Losses. 

This initiative includes resources to establish a physical presence and focal point for tax 

treaty and U.S. tax administration in Asia. Outsourcing and growth of Asian businesses 

and markets have resulted in: 

• Significant increases in U.S. corporate business activity and investment in China, 

which requires greater interaction with Chinese tax officials with the administration 

of the U.S.-China Income Tax Treaty. 

• Increased activity on potential double-taxation matters, exchange of information 

activities, and tax treaty interpretation issues with China. 

• Increased American expatriate population and U.S.-owned business/corporate entities 

in China, resulting in greater local demand for IRS taxpayer service and assistance. 

• The Beijing post will serve as the Asia regional office for all IRS activities and will 

support treaty administration with other significant economic partners, e.g., Japan and 

Korea. With the closure of the Tokyo and Singapore posts, Beijing will be the only 

IRS office in Asia. 

IRS - 36
• A Chinese presence will help deter non-compliance among this growing expatriate 

population and address the concern by GAO of a high non-filing rate by U.S. citizens 

living abroad. 

• Chinese multinational businesses and Chinese outsourcing are both growing. The 

post will also provide tax guidance for Chinese citizens that work temporarily in the 

U.S. (Non-resident Alien Taxpayers). 

In addition to the 4 FTE and related funds to establish a Beijing post, this initiative 

includes 50 FTE to close 330 additional smaller corporate returns with international 

activity and 1,571 additional individual returns as well as 14 FTE for the IRS Counsel 

attorneys to advise revenue agents on complicated issues of tax law and accounting 

principles in the context of flow-through enterprises. The initiative also addresses GAO 

and Treasury Inspector General for Tax Administration (TIGTA) concerns about 

unacceptably high non-compliance by partnerships and S-corporations. 

Increase Compliance for

Large M ultinational Businesses

Costs, Revenues Collected, and Returned on Investment

(Dollars in M illions)

$22.7 $22.7

$31.2

$43.6

$73.6

$26.2

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

FY 2008 FY 2009 FY 2010

Costs Revenue

1.2 t o 1

1.9 t o 1

3.2 t o 1

NOTE: The initiative will improve voluntary compliance by providing a more 

effective deterrent. The chart depicts only direct enforcement revenue. 

Expand Document Matching in Existing Sites 

+$27,958,000 / +214 FTE

This initiative increases coverage within the IRS Automated Underreporter (AUR) 

program to address the tax gap by minimizing revenue loss through increased document 

matching of individual taxpayer account information. These resources will increase 

enforcement revenue collected by approximately $208 million annually, once the new 

hires reach full potential in FY 2010. 

About 6.9 million Small Business Self-Employed (SB/SE) taxpayers may currently 

misreport their income based on third party information returns. Of those, the SB/SE 

AUR program processes approximately 2.1 million taxpayer cases, leaving an 

unaddressed gap of 4.8 million taxpayers. The objective of the AUR program is to 

minimize revenue loss through document matching of small business and self-employed 

taxpayer account information. The IRS commitment to maintaining a robust AUR 

IRS - 37
program is demonstrated by a commitment to increasing enforcement results and is 

reflected in targets for the long-term goals and corresponding performance targets. 

The additional resources will increase the number of AUR closures from 2.05 million in 

FY 2007 to 2.64 million in FY 2010. The AUR program has one of the highest returns 

on investment ratios of all compliance programs. By 2010, the return on investment, as 

shown below, is expected to reach 8.5:1. 

Expand D ocument M at ching in Exist ing Sit es

C ost s, R evenues C ollect ed , and R et urn on Invest ment 

( Dollars in M illions)

$25 $25

$94

$166

$208

$28

$0

$50

$100

$150

$200

$250

FY 2008 FY 2009 FY 2010

Costs Revenue

3.4 t o 1

6.8 t o 1

8.5 to 1

NOTE: The initiative will improve voluntary compliance by providing a more 

effective deterrent. The chart depicts only direct enforcement revenue. 

This funding for this initiative will maximize coverage in the three existing sites 

(Brookhaven, Philadelphia, and Ogden) and establish a new, centralized small business 

and self-employed AUR toll-free operation, using available space at an existing AUR 

site. Establishment of an operation designed exclusively to handle the SB/SE AUR tollfree traffic will enable significant coverage expansion in the three existing sites and, 

ultimately, generate productivity savings in the designated call site. Current technology 

allows for the routing of calls to a single site. In addition, start-up costs are reduced 

because equipment currently available at the three existing sites will be used to establish 

a new toll-free operation. 

This initiative links the IRS compliance resources to clearly defined, measurable, resultsoriented annual performance outcomes. It further addresses widespread concerns 

regarding the erosion of the IRS’ enforcement presence and the continued growth in noncompliance expressed by TIGTA, GAO, Congress, and the media. By decreasing the 

AUR tax gap, this initiative will serve to improve the long-term Voluntary Compliance 

Rate metric and increase the programmatic long-term goal of AUR Coverage. 

Establish New Document Matching – Kansas City 

+$23,453,000 / +208 FTE

This funding for this initiative will establish a new Automated Underreporter (AUR) site 

in existing IRS space in Kansas City. The AUR program minimizes revenue loss through 

IRS - 38
document matching of individual taxpayer account information. The AUR program has 

one of the highest return on investment ratios of all compliance programs. 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. 

One-time start up costs include designing space alterations, new work stations, furniture, 

infrastructure changes, computer equipment, initial training and travel costs, and 

relocation expenses. The on-going operational costs to process daily and weekly AUR 

computer runs and support weekly maintenance of the AUR system also are included. 

 

Establish N ew D o cument M atching - Kansas C ity

Costs, Revenues Collected, and Returned on Investment

(Dollars in M illions)

$19 $19

$83

$146

$183

$24

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

FY 2008 FY 2009 FY 2010

Costs Revenue

3.5 t o 1

7.8 t o 1

9.8 t o 1

NOTE: The initiative will improve voluntary compliance by providing a more 

effective deterrent. The chart depicts only direct enforcement revenue. 

The establishment of this new AUR site will result in $183 million in additional 

enforcement revenue annually, once the new hires reach full potential in FY 2010. 

This initiative links IRS compliance resources to clearly defined, measurable, resultsoriented 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. 

Increase Individual Filing Compliance 

+$6,544,000 / +61 FTE

This initiative will help address voluntary compliance. The Automated Substitute for 

Return Refund Hold Program (ASFR Refund Hold) minimizes revenue loss by holding 

the current-year refunds of taxpayers who are delinquent in filing individual income tax 

returns and are expected to owe additional taxes and addresses both payment and filing 

compliance for the IRS. This program will enable the IRS to review any unfiled returns 

during the previous five years. The current-year held refund is applied or released once 

IRS - 39
delinquent returns are filed or assessed. This initiative will expand the program to 

include delinquent-year refunds. 

Approximately 42 million individual prior-year returns were delinquent for tax years 

2000 to 2004. In FY 2006, the ASFR Refund Hold program is projected to work 

approximately 242,000 current-year Refund Holds. ASFR Refund Hold is a key 

enforcement tool to address filing compliance. 

Increase Individual Filing Compliance

Costs, Revenues Collected, and Returned on Investment

(Dollars in Millions)

$6 $6

$37

$66

$82

$7

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

FY 2008 FY 2009 FY 2010

Costs Revenue

5.7 to 1

11.3 to 1

14.2 to 1

NOTE: The initiative will improve voluntary compliance by providing a more 

effective deterrent. The chart depicts only direct enforcement revenue. 

This initiative will result in securing 90,000 delinquent returns in FY 2008 and produce 

$82 million of additional enforcement revenue annually, once new hires reach full 

potential in FY 2010. 

Increase Tax-Exempt Entity Compliance

+$15,000,000 / +109 FTE

The legitimate tax expenditure related to the tax-exempt provisions of the Internal 

Revenue Code is estimated at $238 billion in 2008. Because of the special benefits 

afforded tax-exempt organizations, employee pension plans, and other entities with 

special tax status, these provisions may attract fraud and abuse. Thus, it is critical to 

ensure that tax-exempt entities are legitimate when they are established, maintain 

compliance throughout their operation, and are not misused by third parties for tax 

avoidance or other unintended purposes. 

This initiative will promote compliance with applicable tax laws and regulations in the 

tax-exempt and governmental arena through a comprehensive program of up-front 

compliance activities and enhanced downstream enforcement. The determination 

process, through which tax-exempt organizations and employee retirement plans first 

seek recognition of their exempt or qualified status from IRS, may be the only formal 

compliance interaction many entities have with the IRS. As such, it provides IRS a 

valuable opportunity to ensure that the applicant's proposed design and operations are 

consistent with the applicable tax law. It further provides an opportunity to detect and 

IRS - 40
address emerging abusive behaviors before they can spread within the sector. Additional 

resources will strengthen this critical program to address the growing number of requests 

for determination. 

Downstream, this initiative will provide resources to expand enforcement programs 

aimed at tax exempt and government entities and make them more effective. Increasing 

enforcement staffing will restore coverage of the tax-exempt community, which has 

declined due to unprecedented growth in the sector and the emergence of complex 

abusive tax issues. From FY 1995 to FY 2005, the number of exempt organizations grew 

40 percent. At the same time, concerns about credit counseling agencies, excess 

executive compensation and other compliance issues related to exempt organizations are 

coming to the fore. This initiative will expand the IRS’ examination capacity to pursue 

critical compliance initiatives such as these, while also using innovative approaches to 

reverse the decline in enforcement presence in the exempt sector. An expanded Exempt 

Organizations Compliance Unit will broaden coverage, using efficient techniques to 

address limited compliance issues among tax-exempt organizations. Meanwhile, 

additional IRS staffing will meet the growing demand for self-correction in the pension 

community, resolving, through self-audits, many defects that might not otherwise have 

been identified and at a lower cost than traditional examination. 

Together, these steps will further the IRS strategic objective to deter abuse within taxexempt and governmental entities and misuse of such entities by third parties for tax 

avoidance or other unintended purposes. This initiative will increase tax exempt and 

government entity compliance contacts by 1,700 (6 percent) and employee plan/exempt 

organization (EP/EO) determinations closures by over 9,000 (8 percent) by FY 2010. In 

addition, this investment will increase performance by improving the timeliness of 

Determination and Voluntary Compliance programs. 

This initiative directly supports IRS’ Strategic Goal to enhance enforcement of the tax 

law, with the objective to deter abuse within tax-exempt and governmental entities, and 

misuse of such by third parties for tax avoidance. Additional staffing for Determination 

and Voluntary Compliance requests will also improve taxpayer service. 

Increase Criminal Tax Investigations

+$10,000,000 / +37 FTE

This initiative will provide funding to aggressively attack abusive tax schemes, corporate 

fraud, non-filers, employment tax fraud, as well as tax and other financial crimes 

identified through Bank Secrecy Act (BSA)-related examinations and case development 

efforts, which includes an emphasis on the fraud referral program. During the past 

decade, criminals capitalizing on advancements in technology and the globalization of the 

economy have contrived some of the most sophisticated tax evasion schemes in history. 

The continued threat non-compliance poses to the integrity of the American tax system is 

evidenced by the latest net tax gap estimate of $290 billion. Criminal Investigations (CI) 

robust pursuit of tax violators and the resulting publicity, foster deterrence, enhance 

voluntary compliance and reduce the tax gap. 

IRS - 41
CI is working closely with the SB/SE and LMSB operating divisions to combat abusive 

schemes through the use of parallel proceedings. This approach is particularly useful 

when dealing with tax shelters sold by financial service corporations to high net-worth 

individuals and corporations. Only a comprehensive approach can successfully defeat 

these schemes, which sometimes involve thousands of clients and billions in revenue. 

CI pursuit of tax violators over the past five years resulted in an increase in the length of 

prison sentences imposed in tax related investigations (averaging 19 to 22 months) and 

the substantial media coverage of these cases, evidenced by CI’s high publicity rates (the 

percentage of sentenced cases that have received media coverage: 67.9 percent in 

FY 2002 to 82.5 percent in FY 2006). 

Abusive tax avoidance transactions present formidable compliance challenges. The 

complex layering of schemes, the use of tax haven jurisdictions, off-shore based financial 

activities, and the increased sophistication of promoters have required CI to devote more 

investigative resources to this program area. Further, the increase in Internet-based tax 

schemes poses new challenges. 

The overall success of CI’s abusive scheme work is reflected in the stiff prison sentences 

imposed during the past five years averaging 28 to 47 months and the high publicity rate 

90.9 percent in FY 2006. Compared to the average over the past five years, CI forwarded 

4.9 percent more prosecution recommendations in FY 2006 (103 vs. 98) and had 

16.7 percent more convictions on abusive tax scheme cases (67 vs. 57). 

A report by the U.S. Senate Permanent Subcommittee on Investigations released in 

February 2005, entitled The Role of Professional Firms in the U.S. Tax Shelter Industry, 

recommended that Congress appropriate additional funds to enable the IRS to hire more 

enforcement personnel to stop the promotion of potentially abusive and illegal tax 

shelters by lawyers, accountants, and other financial professionals. 

Following the collapse of some of the nation’s largest publicly held corporations due to 

the widespread fraud and executive malfeasance, President Bush authorized the 

formation of a Department of Justice corporate fraud task force. CI has a particularly 

important role in this program area. Some of the most crucial corporate fraud related 

convictions obtained to date were for tax offenses. In FY 2006, the importance of CI’s 

role can be measured by the substantial prison sentences imposed (49 months) and the 

97.2 percent publicity rate. 

CI’s effort to combat non-filers remains at an all-time high. In partnership with the 

operating divisions, CI pursues high income, non-filers across a broad spectrum of 

professions. The results of CI’s work have been impressive, with sentences in non-filer 

cases among the most severe imposed for tax offenses. In FY 2006, non-filer initiations 

and indictments rose 9.5 percent and 12.3 percent, respectively, compared to the averages 

over the past five years. During the past five years, average prison sentences associated 

IRS - 42
with non-filer cases ranged from 34 to 49 months; and more than 80 percent of sentenced 

investigations received publicity. These cases will clearly remain a high investigative 

priority. 

CI remains committed to the fraud referral program, which continues to result in quality 

criminal investigations. Since FY 2004, CI has received 13.7 percent more fraud 

referrals (603 vs. 530) and the acceptance rate rose from 58 percent to 71.8 percent. In 

FY 2006, approximately 10.1 percent of the fraud referrals received involved an abusive 

scheme, 5.0 percent of the referrals involved employment taxes and 1.3 percent involved 

corporate fraud. 

 

Since Financial Crimes Enforcement Network (FinCEN) published regulations requiring 

non-bank, money services businesses (MSB) to comply with the same BSA record 

keeping and reporting requirements as financial institutions, more than 90,000 MSBs 

were identified. SB/SE, which has regulatory authority over MSBs, is placing greater 

attention on examining these entities. Their BSA examinations will result in increased 

criminal referrals. 

The chart below shows the impact of implementing the initiative on criminal 

investigations convictions for all CI activities. Research suggests that tax convictions 

have a significant positive impact on voluntary compliance. 

Convictions

2060

2080

2100

2120

2140

2160

2180

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13

w /o Initiative w ith Initiative

 

Taxpayer Services Initiatives 

Research Effect of Service on Taxpayer Compliance

+$5,000,000 / +8 FTE

This initiative provides funding to enhance understanding of the role of taxpayer service 

on compliance by undertaking new research on the service needs of taxpayers. The effect 

of service on taxpayer compliance will be examined by focusing on four areas: 

1. Meeting Taxpayer Needs by Providing the Right Channel of Communication – 

Classifying the types of services taxpayers seek from various options (internet, walkin sites, toll-free hotline), preferences among these options, and the costs of providing 

IRS - 43
the services. The goal is to determine the most productive communication channels 

for the IRS and taxpayer. 

2. Better Understanding Taxpayer Burden – Update the taxpayer burden survey to 

 provide revised estimates of the compliance burden incurred by individual income 

taxpayers. Continue the development of a post-filing model to allow for the 

evaluation of proposals designed to reduce taxpayer burden, improve taxpayer 

service, and further the understanding of the relationship between service and 

compliance. 

3. Understanding Taxpayer Needs through the Errors They Make – Improve taxpayer 

service and increase voluntary compliance by identifying why taxpayers make errors 

and the relationships between errors and unclear notices and publications. Further 

research will assess the effect of proposed changes to remedy the errors. This will 

channel resources more efficiently to areas with the greatest need and reduce IRS 

burden by increasing the accuracy of returns by taxpayers who strive to be compliant. 

4. Research on the Impact of Service on Overall Levels of Voluntary Compliance –

Develop models of how taxpayer services affect voluntary compliance levels and 

measure the impact of IRS activities relating to taxpayer service on the level of 

voluntary compliance. This research will attempt to quantify the relationship between 

services provided and overall compliance. In addition to providing enhanced service 

to taxpayers, the results of the study will be instrumental in reducing the tax gap by 

increasing voluntary compliance. 

Expand Volunteer Income Tax Assistance

+$5,000,000 / +46 FTE

This initiative supports the IRS goal of improving taxpayer service. It funds additional 

resources to expand IRS volunteer return preparation, outreach and education, and 

provide financial literacy training. These services are offered to low-income, elderly, 

Limited English Proficient (LEP), and disabled taxpayers. The IRS currently partners 

with more than 60 national organizations representing financial institutions, educational 

institutions, tribal governments, community, and volunteer organizations to provide these 

services. At the local level, the IRS has formed over 290 coalitions representing 

thousands of partners supporting the Volunteer Income Tax Assistance (VITA)/Tax 

Counseling for the Elderly (TCE) effort. The additional FTE will support the IRS’ 

growing number of partners and growing taxpayer demand for these services. This 

initiative also will enable the IRS to increase its presence and training support 

opportunities for its volunteer partners. 

The Volunteer Return Preparation Program – Quality Improvement Process (VRPP-QIP) 

will continue to be a focal point in implementing this initiative. The IRS has 

implemented several enhanced processes and is working toward continued improvement 

of the accuracy of tax returns at the volunteer preparation sites. This IRS investment 

provides partners with tax law and software training, marketing materials, educational 

IRS - 44
products, research data for optimal site placement and effectiveness, supplies, technology 

support (software, computers and printers); and the necessary products, procedures and 

technical expertise for effective site operations. 

These resources will also enhance and expand the following specific initiatives to 

improve taxpayer service coverage to IRS customers: 

• Rural Strategy – The IRS has a multi-year proposal currently under development to 

expand services to rural populations in seven states that have some of the largest 

numbers of low-income taxpayers. These resources will enable the IRS to accelerate 

this rural strategy and form a coalition of foundations with a rural emphasis to further 

enable IRS to expand services to these underserved rural areas. 

• Disability Initiative – The IRS is expanding its partnering efforts with organizations 

that serve people with disabilities to ensure that this segment of the population is 

educated on the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and 

other unique benefits in the tax code. This includes increasing access to and 

utilization of free tax preparation services for persons with disabilities. 

• Native American Initiative – The IRS is continuing its partnering efforts to provide 

additional services to low-income Native, rural communities. These resources will 

assist the IRS in expanding the VITA program to Indian reservations. 

This initiative will enable the IRS to expand its outreach and education programs and 

improve the quality of the Volunteer Return Preparation Program (VRPP). This initiative 

provides the resources needed to achieve its 60 percent quality rate for VRPP in FY 2008. 

This funding will provide the additional training presence and on site support most 

requested by IRS partners and needed to improve the quality of return preparation at 

VITA sites. 

Such investment is consistent with the priorities identified in both the IRS Strategic Plan 

and the Taxpayer Assistance Blueprint. It supports increased taxpayer value 

(significantly improved awareness, access) and business value (cost efficiency) gained 

through partner-based service delivery. The IRS has already realized many of these 

benefits; however, improving the quality of the assistance is critical to sustaining the 

viability of this powerful business model. 

Implement Taxpayer Assistance Blueprint

+$10,000,000 / 0 FTE

In response to a Congressional directive, the IRS conducted a comprehensive review of 

its current portfolio of taxpayer service to create a Taxpayer Assistance Blueprint (TAB). 

The TAB outlines a five-year strategic plan to implement specific, research-based service 

initiatives. Based on the findings of the TAB study, the funding for this initiative will 

implement telephone service and Web site electronic interaction enhancements. 

IRS - 45
Continued investments in automated services and processes offer significant 

opportunities for the IRS to improve the efficiency and effectiveness of its service 

provided to taxpayers. The following information details the benefits of investing in this 

initiative. 

Telephone Service Enhancements: 

Contact Analytics ($3.5M) – Contact Analytics (CA) provides Commercial-off-the-Shelf 

(COTS) tools for evaluating contact center recordings for the purpose of identifying 

improvements. This initiative will expand the IRS’ capability to record, store, and 

analyze information received during a taxpayer telephone contact. Large segments of 

recorded messages can be selected as a group, reviewed and compared using userspecified search criteria. The analytic tools will provide the capability to drill down to 

individual recordings to hear selected conversations. 

CA will provide the broad and accurate data required to perform business process 

reengineering, as well as information needed to gain better insight into service 

preferences. CA improves the ability to measure call accuracy, timeliness, and 

professionalism--leading to process improvements and cost savings. It also will improve 

the ability to identify and respond to problems--leading to more accurate, clearer 

responses to taxpayers. Employee satisfaction will increase through improved work 

processes that allow assistors to handle more complex calls with fewer transfers. Such 

advancements will support the IRS in capturing more and better data around the service 

experience, which will result in improved understanding of service levels and potential 

enhancements. 

Estimated Wait Time ($375K) –According to the Customer Contact Council, recent 

research shows that customers rate estimated wait time as one of the top five most 

important technologies when rating Contact Centers; customers who had been exposed to 

estimated wait technology were virtually all satisfied with its features. The estimated wait 

time (EWT) enhancement will reduce taxpayer burden and increase customer satisfaction 

by informing taxpayers about their expected wait time in queue. 

Web site Interaction Enhancements: 

Expanded Portfolio of Tax Law Decision Support Tools ($5.699M) – Website 

enhancements are designed to maximize the value of IRS.gov to taxpayers and other 

external stakeholders, making the Website the first choice for obtaining the information 

and services required to comply with tax obligations. 

This enhancement will enable users to conduct key word and natural language queries 

and to get answers to tax law questions through the Frequently Asked Questions (FAQs) 

database accessed on IRS.gov. Users will be able to access standard reports, searches, 

and “Top Ten” FAQ lists. An analytics console will allow in-depth analysis of reports. 

IRS - 46
Spanish “Where’s My Refund?” ($426K) – This enhancement adds the refund status 

feature to the Spanish web page on IRS.gov, enabling the Spanish-speaking community 

to receive the same level of customer service on the web as available on the English web 

page. 

IRS - 47
Operating Levels Table 

Internal Revenue Service 

Appropriation Title: Internal Revenue Service FY 2006 

Enacted

FY 2007 

President's 

Budget

CR-rate 

Adjustment

FY 2007 

CR-rate

Proposed 

Reprogrammings

FY 2007 

Proposed 

Operating Plan 

at CR-rate

FY 2008 

President's 

Budget

FTE 95,386 93,036 (1,318) 91,718 0 91,718 92,118

Object Classification:

11.1 Full-Time Permanent Positions............................ $5,310,233 $5,380,296 $5,314,842 $5,310,649 $5,574,665

11.3 Other than Full-Time Permanent Positions........

($65,454) ($4,193)

. 433,414 427,129 415,289 103 415,392 412,796

11.5 Other Personnel Compensation.........................

(11,840)

. 246,491 248,226 245,097 288 245,385 259,835

11.8 Special Personal Services Payments................. 16,753 16,863 0 16,863 0 16,863 17,499

11.9 Personnel Compensation (Total)................... $6,006,891 $6,072,514 $5,992,091 $5,988,289 $6,264,795

12.0 Personnel Benefits................................................ 1,620,275 1,653,086 1,641,932 1,641,819 1,712,785

13.0 Benefits to Former Personnel.............................. 67,401 62,001 54,048 131 54,179 61,623

21.0 Travel.....................................................................

(3,129)

($80,423) ($3,802)

(11,154) (113)

(7,953)

. 210,113 214,075 200,216 781 200,997 226,387

22.0 Transportation of Things......................................

(13,859)

. 26,371 27,309 0 27,309 1 27,310 28,481

23.1 Rental Payments to GSA...................................... 680,865 640,193 0 640,193 0 640,193 665,737

23.2 Rent Payments to Others...................................... 351 375 0 375 0 375 388

23.3 Communications, Utilities, & Misc........................ 367,907 366,213 358,662 1 358,663 380,022

24.0 Printing and Reproduction...................................

(7,551)

. 67,187 65,926 0 65,926 128 66,054 67,549

25.1 Advisory & Assistance Services........................... 141,597 61,049 56,789 1,529 58,318 60,143

25.2 Other Services....................................................... 641,014 620,120 608,494 607,096 707,829

25.3 Purchase of Goods/Serv. from Govt. Accts......

(4,260)

(11,626) (1,398)

... 83,494 84,247 82,988 2,141 85,129 87,374

25.4 Operation & Maintenance of Facilities................

(1,259)

. 188,951 179,710 179,159 0 179,159 182,810

25.5 Research & Development Contracts..................

(551)

. 7,469 7,272 0 7,272 0 7,272 8,177

25.6 Medical Care......................................................... 10,005 10,005 0 10,005 0 10,005 10,245

25.7 Operation & Maintenance of Equipment............. 100,296 88,543 78,154 78,003 78,912

25.8 Subsistence & Support of Persons.....................

(10,389) (151)

. 5,090 4,732 0 4,732 143 4,875 5,130

26.0 Supplies and Materials......................................... 64,415 56,873 56,624 54,634 59,168

31.0 Equipment.............................................................

(249) (1,990)

. 266,981 302,541 298,342 2,598 300,940 410,961

32.0 Lands and Structures........................................... 0 58,056 0 58,056 0 58,056 59,449

33.0 Investments & Loans............................................

(4,199)

. 000 0 0 00

41.0 Grants, Subsidies.................................................. 11,944 12,195 0 12,195 0 12,195 12,569

42.0 Insurance Claims & Indemn................................. 1,275 988 0 988 1 989 1,033

43.0 Interest and Dividends................................. 000 0 0 00

44.0 Refunds.................................................................. 000 0 0 00

91.0 Unvouchered.............................................. 3,814 3,814 0 3,814 0 3,814 3,932

Total Budget Authority....................................... $10,573,706 $10,591,837 $10,438,364 $0 $10,438,364 $11,095,499

Budget Activities:

Pre-Filing Taxpayer Assistance and Education.........

($153,473)

... $2,142,042 $2,079,151 $2,059,151 $2,046,908 $2,103,089

Enforcement ...................................................

($20,000) ($12,243)

... 4,708,441 4,797,126 4,708,405 4,660,572 4,925,498

Operations Support..........................................

(88,721) (47,833)

... 3,461,205 3,488,404 3,459,152 60,076 3,519,228 3,769,587

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

(29,252)

... 242,010 212,310 196,810 0 196,810 282,090

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

(15,500)

... 20,008 14,846 0 14,846 0 14,846 15,235

Total Budget Authority....................................... $10,573,706 $10,591,837 $10,438,364 $0 $10,438,364 $11,095,499

Table 2.2

Dollars in Thousands

($153,473)

IRS - 48
2B – Appropriations Language and Explanation of Changes 

TITLE II – DEPARTMENT OF THE TREASURY 

INTERNAL REVENUE SERVICE 

Taxpayer Services 

For necessary expenses of the Internal Revenue Service to provide taxpayer services, 

including pre-filing taxpayer assistance and education, filing and account services, 

taxpayer advocacy services, and services as authorized by 5 U.S.C. 3109, at such rates as 

may be determined by the Commissioner, $2,103,089,000, of which up to $4,100,000 

shall be for the Tax Counseling for the Elderly Program, and of which $8,000,000 shall 

be for low-income taxpayer clinic grants. 

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 purchase (for police-type use, not to exceed 850) and hire of 

passenger motor vehicles (31 U.S.C. 1343(b)), and services as authorized by 5 U.S.C. 

3109, at such rates as may be determined by the Commissioner, $4,925,498,000, 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 Internal Revenue Service, "Operations Support" solely for the purposes of the 

Interagency Crime and Drug Enforcement program: Provided further, That this transfer 

authority shall be in addition to any other transfer authority provided in this Act.

IRS - 49
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. 

Operations Support 

For necessary expenses of the Internal Revenue Service to support taxpayer services and 

enforcement programs, including rent payments; facilities services; printing; postage; 

physical security; headquarters and other IRS-wide administration activities; research 

and statistics of income; telecommunications; information technology development, 

enhancement, operations, maintenance, and security; the hire of passenger motor 

vehicles (31 U.S.C. 1343(b)); and services as authorized by 5 U.S.C. 3109, at such rates 

as may be determined by the Commissioner; $3,769,587,000 of which $75,000,000 shall 

remain available until September 30, 2009, for information technology support; of which 

not to exceed $1,000,000 shall remain available until September 30, 2010, for research; 

of which not 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. 

Business Systems Modernization 

For necessary expenses of the Internal Revenue Service's business systems modernization 

program, $282,090,000, to remain available until September 30, 2010, for the capital 

asset acquisition of information technology systems, including management and related 

contractual costs of said acquisitions, including related Internal Revenue Service labor 

costs, and contractual costs associated with operations authorized by 5 U.S.C. 3109: 

Provided, That, with the exception of labor costs, none of these funds may be obligated 

until the Internal Revenue Service submits to the Committees on Appropriations, 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. 

IRS - 50
ADMINISTRATIVE PROVISIONS—INTERNAL REVENUE SERVICE 

(INCLUDING TRANSFERS OF FUND) 

 Sec. 201. 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 notification of the Committees on Appropriations. 

 Sec. 202. 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 cross-cultural relations. 

 Sec. 203. The Internal Revenue Service shall institute and enforce policies and 

procedures that will safeguard the confidentiality of taxpayer information. 

 Sec. 204. Of the funds made available by this Act to the Internal Revenue Service, not 

less than $6,787,950,000 shall be available only for tax enforcement and related support 

activities funded in Internal Revenue Service, "Enforcement" and "Operations Support." 

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 $440,264,000 shall be available 

for tax enforcement and related support activities. 

 Sec. 205. Section 9503(a) of title 5, United States Code, is amended by striking the 

clause “for a period of 10 years after the date of enactment of this section” and replacing 

it with “before July 23, 2013”. 

 Sec. 206. Sections 9504(a) and (b), and 9505(a) of title 5, United States Code, are 

amended by striking the clause “For a period of 10 years after the date of enactment” 

each place it occurs, and replacing it with “Before July 23, 2013”. 

 Sec. 207. Section 9502(a) of title 5, United States Code, is further amended by striking 

“Office of Management and Budget” and replacing it with “Office of Personnel 

Management”. 

IRS - 51
2C – Legislative Proposals 

The IRS needs to find ways to fairly and effectively administer the tax law while 

minimizing burden on taxpayers. Tax laws are changed each year and the changes are 

aimed at simplifying the tax code, improving compliance and reducing the cost of 

administering the tax laws. The IRS works extensively with stakeholders to move closer 

to meeting the demands of the customers and eliminating barriers that prevent taxpayers 

from meeting their tax obligations. The President’s Budget includes the main categories 

of legislative proposals below. When implemented, it is estimated that these proposals 

will generate approximately $29 billion over the next ten years: 

• Expanding 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. Expand broker information reporting; 

4. Require information reporting on merchant payment card reimbursements; 

5. Require a certified taxpayer identification number (TIN) from non-employee 

service providers; 

6. Require increased information reporting for certain government payments for 

property and services; and 

7. Increase information return penalties. 

• Improve Compliance by Businesses 

Improving compliance by businesses of all sizes is important. Specific proposals to 

improve compliance by businesses would: 

1. Require electronic filing by certain large businesses; 

2. Implement standards clarifying when employee leasing companies can be held 

liable for their clients’ Federal employment taxes; and 

3. Amend collection due process procedures applicable to employment tax 

liabilities. 

• 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 

 database; 

2. Permit the IRS to disclose to prison officials return information about tax 

 violations; and 

3. Make repeated failure to file a tax return a felony. 

IRS - 52
• Expand Penalties

 Penalties play an important role in discouraging intentional non-compliance. 

Specific proposals to expand penalties would: 

1. Expand preparer penalties; 

2. Impose a penalty on failure to comply with electronic filing requirements; and 

3. Create an erroneous refund claim penalty. 

• Other Miscellaneous Proposals 

The Administration has four proposals relating to IRS administrative reforms. 

1. Modify employee infractions subject to mandatory termination and permit a 

broader range of available penalties. This will strengthen taxpayer privacy 

while reducing employee anxiety resulting from unduly harsh discipline or 

unfounded allegations. 

2. Allow the IRS to terminate installment agreements when taxpayers fail to make 

timely tax deposits and file tax returns on current liabilities. 

3. Eliminate 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 the Treasury establish standards to determine when an opinion is 

appropriate. 

4. Modify the way that Financial Management Services (FMS) recovers its 

transaction fees for processing the IRS’ levies by permitting FMS to add the fee 

to the liability being recovered, thereby shifting the cost of collection to the 

delinquent taxpayer. The offset amount would be included as part of the 15-

percent limit on continuous levies against income. 

IRS - 53
Taxpayer Services 
Section 3 – Budget and Performance Plan 

Taxpayer Services (TS) 

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 assisting 

taxpayers to understand their tax obligations, correctly file their returns, and pay taxes 

due timely. 

The Taxpayer Services budget request for FY 2008 is $2,103,089,000 in direct 

appropriations and 30,160 FTE. This is an increase of $56,181,000 or 2.7 percent, and a 

decrease of 437 FTE, over the FY 2007 Continuing Resolution (CR) Rate of 

$2,046,908,000 and 30,597 FTE. 

Appropriations Detail Table 

Taxpayer Services 

FY 2007 FY 2007 

President's Budget CR-rate

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Pre-Filing Taxpayer Assistance and Education 6,206 $577,425 5,461 $559,249 6,047 $575,694 5,990 $556,693 6,031 $578,078 0.68% 3.84%

Filing and Account Services 25,844 1,564,617 25,925 1,568,209 24,844 1,503,457 24,607 1,490,215 24,129 1,525,011 -1.94% 2.33%

Subtotal New Appropriated Resources 32,050 $2,142,042 31,386 $2,127,458 30,891 $2,079,151 30,597 $2,046,908 30,160 $2,103,089 -1.43% 2.74%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable 767 $51,069 997 $41,474 331 $26,824 331 $26,824 339 $27,414 2.42% 2.20%

50% Carryover 10,655

Mandatory Appropriations - User Fees 168,000 168,000 108,000 -35.71%

Available multi-year/no-year funds 13,236 3,429 15,866 15,866 6,866 -56.73%

Transfers In/Out

Subtotal Other Resources 767 $64,305 997 $55,558 331 $210,690 331 $210,690 339 $142,280 2.42% -32.47%

Total Resources Available for Obligation 32,817 $2,206,347 32,383 $2,183,016 31,222 $2,289,841 30,928 $2,257,598 30,499 $2,245,369 -1.39% -0.54%

Obligations President's Budget

Dollars in Thousands

Enacted over CR-rate

% Change

Resources Available for Obligation

FY 2006 FY 2006 FY 2008

Table 3.1

IRS - 54
Budget Adjustment Table 

Taxpayer Services 

FTE Amount

FY 2007 President's Budget 30,891 $2,079,151

CR-rate Adjustment (330) (20,000)

(12,243)

(527) ($23,407)

(527)

($5,968)

(5,968)

FY 2007 CR-rate 30,561 $2,059,151

Interappropriation Transfer Corrections to Budget Restructure 36

FY 2007 Operating Plan at CR-rate 30,597 $2,046,908

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $0

Base Adjustment

Maintaining Current Levels (MCLs) $71,500

Pay Annualization 10,190

Pay Inflation Adjustment 58,424

Non-Pay Inflation Adjustment 2,886

Efficiency Savings

Subtotal, Changes to Base $48,093

FY 2008 Base 30,070 $2,095,001

Program Changes:

Program Decreases/Savings: 0

Increased e-File Savings

Program Reinvestments: 0 $5,968

Increase Efficiency Through Submission Processing Site Consolidations 5,968

Program Increases:

Enforcement Initiatives 44 $4,235

Improve Compliance Among Small Business and Self-Employed Taxpayers 31 2,437

Increase Compliance for Large Multinational Businesses 4 1,055

Establish New Document Matching - Kansas City 3 248

Increase Individual Filing Compliance 6 495

Taxpayer Service Initiative 46 $3,853

Expand Volunteer Income Tax Assistance 46 3,853

Subtotal, FY 2008 Program Changes 90 $8,088

Total, FY 2008 President's Budget Request 30,160 $2,103,089

FY 2008 Budget Highlights

Table 2.1

Dollars in Thousands

Appropriation: Taxpayer Services

IRS - 55
Operating Levels Table 

Taxpayer Services 

Appropriation Title: Taxpayer Services FY 2006 

Enacted

FY 2007 

President's 

Budget

CR-rate 

Adjustment

FY 2007 

CR-rate

Proposed 

Reprogrammings

FY 2007 

Proposed 

Operating Plan 

at CR-rate

FY 2008 

President's 

Budget

FTE 32,050 30,891 (330)

($2,143)

(11,647) (1)

(111)

($13,790)

(3,971) (981)

(15)

30,561 36 30,597 30,160

Object Classification:

11.1 Full-Time Permanent Positions............................ $1,117,586 $1,112,080 $1,109,937 $1,626 $1,111,563 $1,152,553

11.3 Other than Full-Time Permanent Positions......... 316,349 321,755 310,108 310,107 303,897

11.5 Other Personnel Compensation.......................... 76,951 76,480 0 76,480 76,369 78,525

11.8 Special Personal Services Payments................. 0 0 0 0 0 0 0

11.9 Personnel Compensation (Total)................... $1,510,886 $1,510,315 $1,496,525 $1,514 $1,498,039 $1,534,975

12.0 Personnel Benefits................................................ 431,056 431,083 427,112 426,131 435,843

13.0 Benefits to Former Personnel.............................. 839 3,046 0 3,046 131 3,177 9,119

21.0 Travel...................................................................... 27,611 27,573 27,558 2 27,560 28,720

22.0 Transportation of Things....................................... 4,403 4,294 0 4,294 0 4,294 4,445

23.1 Rental Payments to GSA...................................... 0 0 0 0 0 0 0

23.2 Rent Payments to Others...................................... 0 0 0 0 0 0 0

23.3 Communications, Utilities, & Misc........................ 3,817 4,862 0 4,862 0 4,862 4,982

24.0 Printing and Reproduction.................................... 7,773 7,898 0 7,898 35 7,933 8,124

25.1 Advisory & Assistance Services........................... 7,778 3,298 0 3,298 2,432 2,490

25.2 Other Services....................................................... 96,568 39,532 37,008 35,623 36,470

25.3 Purchase of Goods/Serv. from Govt. Accts......

(866)

(2,524) (1,385)

... 10,931 10,931 0 10,931 10,602 11,029

25.4 Operation & Maintenance of Facilities................

(329)

. 91 91 0 91 0 91 93

25.5 Research & Development Contracts................... 0 0 0 0 0 0 0

25.6 Medical Care......................................................... 0 0 0 0 0 0 0

25.7 Operation & Maintenance of Equipment............. 8,945 8,945 0 8,945 652 667

25.8 Subsistence & Support of Persons.....................

(8,293)

. 1,467 1,418 0 1,418 9 1,427 1,475

26.0 Supplies and Materials......................................... 15,361 11,813 11,564 9,404 11,827

31.0 Equipment.............................................................. 2,556 2,158 549 2,707 80 2,787 567

32.0 Lands and Structures........................................... 0 0 0 0 0 0 0

33.0 Investments & Loans............................................

(249) (2,160)

. 00000 00

41.0 Grants, Subsidies.................................................. 11,939 11,866 0 11,866 0 11,866 12,232

42.0 Insurance Claims & Indemn................................. 21 28 0 28 0 28 31

43.0 Interest and Dividends................................. 00000 00

44.0 Refunds.................................................................. 0 0 0 0 0 0 0

91.0 Unvouchered.............................................. 00000 00

Total Budget Authority....................................... $2,142,042 $2,079,151 $2,059,151 $2,046,908 $2,103,089

Budget Activities:

Pre-filing Taxpayer Assistance & Education............

($20,000) ($12,243)

... $577,425 $575,694 $571,472 $556,693 $578,078

Filing & Account Services....................................

($4,222) ($14,779)

... 1,564,617 1,503,457 1,487,679 2,536 1,490,215 1,525,011

Total Budget Authority....................................... $2,142,042 $2,079,151 $2,059,151 $2,046,908 $2,103,089

Table 2.2

Dollars in Thousands

(15,778)

($20,000) ($12,243)

IRS - 56
TS Budget Activity: Pre-Filing Taxpayer Assistance and Education 

3A - Description 

Pre-Filing Taxpayer Assistance and Education ($578,078,000 in direct appropriation, 

$1,059,000 from reimbursable programs, and $76,000,000 from user fees) 

This budget activity funds services to assist with tax return filing, including interpretation 

of the tax laws, media, and publications. This includes the following program activities: 

 

• 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 understandable notices, produces forms and 

publications for printed and electronic tax materials, and supplies media production 

services to taxpayers; 

• Taxpayer Advocacy provides advocate services to taxpayers for the purpose of 

preventing future problems by identifying the underlying causes of taxpayer problems 

and participating in the development of systematic and/or procedural remedies; 

• Account Management & 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 ensures that taxpayers have an advocate to 

present their interests within the IRS to resolve taxpayers’ problems through prompt 

identification, referral, and settlement; and 

• National Distribution Center receives and processes orders for IRS forms and 

publications received from individual taxpayers, tax practitioners, and IRS tax return 

preparation partners. 

IRS - 57
3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Pre-Filing Taxpayer Assistance and Education Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $565,841 $577,425 $556,693 $578,078

Offsetting Collections - Reimbursable 1,170 1,573 1,037 1,059

Mandatory Appropriations - User Fees 0 0 76,000 76,000

Total Operating Level $567,011 $578,998 $557,730 $579,137

Human Resources

Appropriated FTE 6,586 6,206 5,990 6,031

Other FTE 14 23 10

Total FTE (direct and reimbursable) 6,600 6,229 6,000 6,042

Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target 75.0% 80.0% 92.0% 85.2% 92.0%

Actual 76.0% 91.4% 83.0% 

Met Y Y N 

Target N/A 80.0% 85.0% 79.6% 86.0%

Actual 76.0% 80.0% 61.2%

Met Y N

Target N/A Baseline 45.7% 48.6% 51.4%

Actual 46.4% 42.5% 46.8%

Met Y

Target Baseline 80.0% 80.0% 75%-85% 75%-85%

Actual 80.0% 80.0% *

Met Y Y

Table 3.2.1 

Timeliness of Critical Filing Season 

Tax Products to the Public (Ot)

Dollars in Thousands

*Data to estimate eligibility rate is not available at this time.

Percent of Eligible Taxpayers Who 

File for EITC (Oe)

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

Timeliness of Critical Other Tax 

Products to the Public (Ot)

Taxpayer Self Assistance Rate (Oe) 

(L)

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing Resolution, 

the implementation of the new tax legislation, and improvements resulting from program efficiencies.

11

IRS - 58
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 the public to 

understand its tax reporting and payment obligations remains a vital part of maintaining 

public confidence in administering the tax laws. The IRS continues to expand its 

outreach by relying on partner organizations such as state taxing authorities and a cadre 

of volunteer groups, such as Volunteer Income Tax Assistance (VITA), to serve taxpayer 

needs. In FY 2006, the 69,000 volunteers filed approximately 2.3 million returns, 

a seven percent increase over FY 2005. 

In FY 2006, the IRS delivered the first phase of the Taxpayer Assistance Blueprint 

(TAB), a comprehensive study that reviewed the IRS’ current taxpayer service options 

provided to taxpayers and identified areas for improvements, including expanded 

taxpayer education and awareness, optimized use of partner services, increased selfservice options, and expanded training and support tools for taxpayers. Phase II includes 

additional research and establishes the framework to develop short and long-term 

outcome goals and metrics for measuring the IRS’ progress on service improvements for 

taxpayers. 

The IRS also played a significant role in outreach and telephone assistance efforts to 

support disaster response due to the hurricanes that occurred along the gulf coast in 

August and September of 2005. The IRS assisted the Federal Emergency Management 

Agency (FEMA) by manning telephone sites to answer 948,814 disaster related 

questions. Also, a substantial number of taxpayers were contacted by the IRS and 

educated in tax related matters such as claiming property and personal losses, applying 

for filing extensions, and requesting extensions of time to pay on existing tax liabilities 

due to financial hardship. In addition, emergency tax relief bills were enacted that 

required over 230 changes to 78 tax products. Despite passage late in the tax year, 83 

percent of the critical filing season tax products and over 61.2 percent of other tax 

products were delivered to the public on time. 

The IRS continues efforts to simplify its tax forms and publications making them more 

user-friendly with the ultimate goal of providing all of its published products in electronic 

format. The FY 2006 taxpayer self-assistance rate was 46.8 percent, which exceeded the 

target of 45.7 percent. This success can be attributed primarily to the high increase in use 

of the “Where’s My Refund?” website feature, which was up 11.8 percent for the 2006 

filing season, and the addition of the Earned Income Tax Computation (EITC) tool to the 

website. 

In FY 2007 and FY 2008, the IRS will continue to simplify tax forms and publications to 

make them more user friendly for use on computer-based systems with the eventual goal 

of providing all published products in an electronic format, which should ensure that all 

critical filing season and other critical tax products are available by established deadlines. 

In addition, efforts to increase electronic filing will continue, with new forms and 

schedules added to the business electronic portfolio, leveraging partner organizations 

IRS - 59
such as state taxing authorities, and increasing use of volunteers to better serve taxpayer 

needs. 

TS Budget Activity: Filing and Account Services 

3A – Description 

Filing and Account Services ($1,525,011,000 in direct appropriation, $26,355,000 from 

reimbursable programs, and $32,000,000 from user fees) 

 

This budget activity funds programs that provide filing and account services to taxpayers, 

process paper and electronically submitted tax returns, issue refunds, and maintain 

taxpayer accounts. This includes the following program activities: 

• Filing and Account Services Management administers filing and account services 

programs; 

• Submission Processing processes paper and electronically-submitted tax returns and 

supplemental documents, accounts for tax revenues, and issues refunds and tax 

notices; 

• Account Management and Assistance – Electronic Correspondence Assistance 

provides education and compliance services to taxpayers through telephone, 

correspondence, and electronic means and to resolve account and notice inquiries, 

either electronically or by telephone; 

• Electronic Tax Administration markets and administers electronic tax administration 

products and services; and 

• Files Most Efficient Organization stores the administrative files and the most recent 

tax returns in-process that are most likely to be requested for research by various IRS 

organizations until they are forwarded to the federal records centers. 

IRS - 60
3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Filing and Account Services Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $1,579,145 $1,564,617 $1,490,215 $1,525,011

Offsetting Collections - Reimbursable 36,813 49,496 25,787 26,355

Mandatory Appropriations - User Fees 0 0 92,000 32,000

Total Operating Level $1,615,958 $1,614,113 $1,516,002 $1,551,366

Human Resources

Appropriated FTE 26,892 25,844 24,607 24,129

Other FTE 453 744 321 328

Total FTE (direct and reimbursable) 27,345 26,588 24,928 24,457

Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target 45.0% 51.0% 55.0% 57.0% 61.6%

Actual 46.5% 51.1% 54.1%

Met Y Y N 

Target 19.6% 17.0% 18.6% 19.5% 21.2%

Actual 17.4% 17.8% 16.6%

Met N Y N

Target 85.0% 82.0% 90.0% 91.0% 91.2%

Actual 80.0% 89.0% 90.9%

Met N Y Y

Target 89.0% 89.8% 92.0% 93.3% 93.4%

Actual 89.0% 91.5% 93.2%

Met Y Y Y

Target N/A 7,261 7,477 7,702 7,880

Actual 8,015 7,585 7,414

Met Y N

Target 83.0% 82.0% 82.0% 78.0% 81.0%

Actual 87.3% 82.6% 82.0%

Met Y Y Y

Target 98.4% 98.4% 99.2% 99.2% 99.2%

Actual 98.3% 99.2% 99.3%

Met N Y Y

Percent Individual Returns 

Processed Electronically (Oe) (L)

Percent of Business Returns 

Processed Electronically (Oe) (L)

Customer Accuracy - Tax Law 

Phones (Oe)

Customer Accuracy - Accounts 

(Phones) (Oe)

Table 3.2.2

Dollars in Thousands

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

Customer Contacts Resolved per 

Staff year (E)

Customer Service Representative 

(CSR) Level of Service (Oe)

Refund Timeliness - Individual 

(paper) 

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing Resolution, 

the implementation of the new tax legislation, and improvements resulting from program efficiencies.

IRS - 61
Description of Performance 

The IRS delivered a successful 2006 filing season in the midst of a very challenging year. 

Despite natural disasters that affected a large number of taxpayers and required an 

unprecedented response, the IRS processed more than 134.7 million total individual 

returns compared to 128.6 million last year, and issued more than 100 million refunds 

totaling $277 billion compared to 97.1 million refunds totaling $205.1 billion. For the 

second consecutive year, more than half, 72.8 million individual returns, were filed 

electronically, a 6.6 percent increase from FY 2005. The most significant increase in 

electronic filing came from home computer filing, which increased by 18.5 percent to 

more than 20.2 million returns. The IRS processed more than 7.7 million business 

returns electronically, a seven percent increase from last year. With an increase in both 

individual and business return filings, the IRS remains on track to have more than half of 

all returns filed electronically. 

A key objective of the IRS’ Taxpayer Service strategic is to increase electronic services 

and improve the ease of taxpayer access. Benefits of improved electronic services were 

demonstrated during the 2006 filing season. The IRS received five percent fewer 

automated calls and eight percent fewer walk-in contacts. The decline in the number of 

customers seeking face-to-face assistance in the Taxpayer Assistance Centers reflects 

taxpayers’ preference to pursue self-assisted options for receiving service. 

Studies initiated by the IRS Oversight Board and others have demonstrated taxpayer 

satisfaction with electronic access to IRS for filing tax and information returns, securing 

forms, instructions and answers including the most frequently asked question, “Where’s 

My Refund?”. Research conducted during Phase II of the TAB will identify the key 

drivers of taxpayer preference for self-assisted versus assisted customer service. 

The IRS continues to emphasize direct service to taxpayers. The Customer Service 

Representative Level of Service was 82 percent. Refund timeliness was at 99.3 percent, 

also ahead of target and prior year performance. 

The IRS and its customers place a high value on accuracy. Accuracy is one of the 

reasons cited by taxpayers who prefer electronic filing. The importance the IRS places 

on accuracy is demonstrated by its performance in Customer Accuracy – Tax Law 

Phones at 90.9 percent and Customer Accuracy – Accounts (Phones) at 93.2 percent, both 

above the FY 2005 levels. 

The IRS developed processes and procedures for administering telecommunications 

excise tax refunds (TETR) to more than 150 million taxpayers in FY 2007. To do this, 

the IRS modified all individual and business tax return forms to include TETR 

information; created a new form to be used by individuals who want to request a refund 

but who have no other tax filing requirement; and drafted a new form to be used by 

taxpayers who choose to request refunds based on their actual payments rather than use a 

standard amount set by the IRS. The IRS also launched an outreach campaign to external 

stakeholder groups, programmed IRS systems to accept form changes, developed TETRIRS - 62
related internal procedures, and trained employees who will interact with taxpayers on 

the phone and at Taxpayer Assistance Centers. In addition, the IRS developed a 

methodology that can be used by businesses and non-profits to estimate their TETR 

claims. 

In FY 2007 and FY 2008, the IRS will continue to research and evaluate information 

regarding taxpayer service needs, priorities, and preferences in order to improve delivery 

services that support taxpayer preferable 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. 

IRS - 63
Enforcement 
Enforcement (ENF) 

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 under reporting of tax 

obligations; and the securing of unfiled tax returns and collecting unpaid accounts. 

The enforcement budget request for FY 2008 is $4,925,498,000 in direct appropriations 

and 48,667 FTE. This is an increase of $264,926,000 or 5.7 percent, and 834 FTE or 

1.7 percent, over the FY 2007 Continuing Resolution (CR) rate of $4,660,572,000 and 

47,833 FTE. 

Appropriation Detail Table 

Enforcement 

FY 2007 FY 2007 

President's Budget CR-rate

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Investigations 4,510 $579,555 4,500 $599,841 4,328 $591,090 4,348 $579,883 4,347 $602,872 -0.02% 3.96%

Exam and Collections 43,045 3,919,275 42,637 3,925,839 43,258 4,054,760 42,264 3,932,599 43,060 4,165,233 1.88% 5.92%

Regulatory 1,979 209,611 1,302 150,115 1,283 151,276 1,221 148,090 1,260 157,393 3.19% 6.28%

Subtotal New Appropriated Resources 49,534 $4,708,441 48,439 $4,675,795 48,869 $4,797,126 47,833 $4,660,572 48,667 $4,925,498 1.74% 5.68%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable 376 $86,041 122 $44,106 191 $48,291 191 $48,291 194 $49,353 1.57% 2.20%

50% Carryover 10,054

Mandatory Appropriations - User Fees 0

Available multi-year/no-year funds 2,289 1,119 2,286 2,286 1,146 -49.87%

Transfers In/Out 37

Subtotal Other Resources 376 $88,330 122 $55,316 191 $50,577 191 $50,577 194 $50,499 1.57% -0.15%

Total Resources Available for Obligation 49,910 $4,796,771 48,561 $4,731,111 49,060 $4,847,703 48,024 $4,711,149 48,861 $4,975,997 1.74% 5.62%

FY 2006

Table 3.1

Obligations President's Budget

Dollars in Thousands

Enacted over CR-rate

% Change

Resources Available for Obligation

FY 2006 FY 2008

IRS - 64
Budget Adjustment Table 

Enforcement 

FTE Amount

FY 2007 President's Budget 48,869 $4,797,126

CR-rate Adjustment (988) (88,721)

(48) (47,833)

(620) ($60,166)

(620)

FY 2007 CR-rate 47,881 $4,708,405

Interappropriation Transfer Corrections to Budget Restructure

FY 2007 Operating Plan at CR-rate 47,833 $4,660,572

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $0

Base Adjustment 0

Maintaining Current Levels (MCLs) $162,373

Pay Annualization 0 23,083

Pay Inflation Adjustment 0 131,573

Non-Pay Inflation Adjustment 0 7,717

Efficiency Savings

Subtotal, Changes to Base $102,207

FY 2008 Base 47,213 $4,762,779

Program Changes:

Program Increases:

Enforcement Initiatives 1,454 $162,719

Improve Compliance Estimates, Measures, and Detection of Non-Compliance 237 29,054

Improve Compliance Among Small Business and Self-Employed Taxpayers 454 55,480

Increase Compliance for Large Multinational Businesses 151 19,916

Expand Document Matching in Existing Sites 208 18,536

Establish New Document Matching - Kansas City 203 15,669

Increase Individual Filing Compliance 55 3,806

Increase Tax-Exempt Entity Compliance 109 11,794

Increase Criminal Tax Investigations 37 8,464

Subtotal, FY 2008 Program Changes 1,454 $162,719

Total, FY 2008 President's Budget Request 48,667 $4,925,498

FY 2008 Budget Highlights

Table 2.1

Dollars in Thousands

Appropriation: Enforcement

IRS - 65
Operating Levels Table 

Enforcement 

Appropriation Title: Enforcement FY 2006 

Enacted

FY 2007 

President's 

Budget

CR-rate 

Adjustment

FY 2007 

CR-rate

Proposed 

Reprogrammings

FY 2007 

Proposed 

Operating Plan 

at CR-rate

FY 2008 

President's 

Budget

FTE 49,534 48,869 (988) (48)

($50,373) ($7,246)

(193)

(3,112)

($53,678) ($6,751)

(4,134)

(13,837)

(38,921)

47,881 47,833 48,667

Object Classification:

11.1 Full-Time Permanent Positions............................ $3,201,250 $3,265,184 $3,214,811 $3,207,565 $3,382,441

11.3 Other than Full-Time Permanent Positions......... 106,545 94,051 93,858 96 93,954 97,309

11.5 Other Personnel Compensation.......................... 139,605 140,302 137,190 399 137,589 145,646

11.8 Special Personal Services Payments................. 16,753 16,863 0 16,863 0 16,863 17,499

11.9 Personnel Compensation (Total)................... $3,464,153 $3,516,400 $3,462,722 $3,455,971 $3,642,895

12.0 Personnel Benefits................................................ 874,868 910,198 906,064 539 906,603 952,840

13.0 Benefits to Former Personnel.............................. 4,525 0 0 0 0 0 0

21.0 Travel...................................................................... 151,456 153,124 139,287 620 139,907 163,019

22.0 Transportation of Things....................................... 4,042 4,002 0 4,002 1 4,003 4,566

23.1 Rental Payments to GSA...................................... 0 0 0 0 0 0 0

23.2 Rent Payments to Others...................................... 342 370 0 370 0 370 383

23.3 Communications, Utilities, & Misc........................ 44,687 44,858 0 44,858 5,937 6,642

24.0 Printing and Reproduction.................................... 6,559 5,297 0 5,297 93 5,390 5,442

25.1 Advisory & Assistance Services........................... 21,680 28,137 23,877 20,877 21,394

25.2 Other Services....................................................... 74,577 73,750 68,197 65,394 66,944

25.3 Purchase of Goods/Serv. from Govt. Accts......

(4,260) (3,000)

(5,553) (2,803)

... 14,949 12,963 11,704 2,470 14,174 14,537

25.4 Operation & Maintenance of Facilities................

(1,259)

. 507 145 0 145 0 145 1,045

25.5 Research & Development Contracts................... 2,847 2,908 0 2,908 0 2,908 2,908

25.6 Medical Care......................................................... 0 0 0 0 0 0 0

25.7 Operation & Maintenance of Equipment............. 6,755 6,766 3,966 3,815 3,947

25.8 Subsistence & Support of Persons.....................

(2,800) (151)

. 3,043 3,043 0 3,043 134 3,177 3,376

26.0 Supplies and Materials......................................... 22,172 23,801 0 23,801 23,731 24,611

31.0 Equipment.............................................................. 6,790 6,848 3,648 5 3,653 6,279

32.0 Lands and Structures........................................... 0 0 0 0 0 0 0

33.0 Investments & Loans............................................

(70)

(3,200)

. 00000 00

41.0 Grants, Subsidies.................................................. 5 329 0 329 0 329 337

42.0 Insurance Claims & Indemn................................. 670 373 0 373 1 374 401

43.0 Interest and Dividends................................. 00000 00

44.0 Refunds.................................................................. 0 0 0 0 0 0 0

91.0 Unvouchered.............................................. 3,814 3,814 0 3,814 0 3,814 3,932

Total Budget Authority....................................... $4,708,441 $4,797,126 $4,708,405 $4,660,572 $4,925,498

Budget Activities:

Investigations...................................................

($88,721) ($47,833)

... $579,555 $591,090 $579,980 $579,883 $602,872

Exam and Collections .......................................

($11,110) ($97)

... 3,919,275 4,054,760 3,978,292 3,932,599 4,165,233

Regulatory ......................................................

(76,468) (45,693)

... 209,611 151,276 150,133 148,090 157,393

Total Budget Authority....................................... $4,708,441 $4,797,126 $4,708,405 $4,660,572 $4,925,498

Table 2.2

Dollars in Thousands

(1,143) (2,043)

($88,721) ($47,833)

IRS - 66
ENF Budget Activity: Investigations 

3A – Description 

Investigations ($602,872,000 in direct appropriation and $37,716,000 reimbursable 

programs) 

This budget activity funds the Criminal Investigations programs that explore potential 

criminal violations of the internal revenue tax laws, enforce criminal statutes relating to 

these violations, and recommend prosecution as warranted. This includes the following 

program activities: 

• Criminal Investigations supports the enforcement of criminal statutes relating to 

violations of internal revenue laws and other financial crimes. It 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; and 

• General Management and Administration supports the unit headquarters management 

activities of strategic planning, communications, finance, human resources for 

criminal Investigations activities. 

IRS - 67
3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Investigations Strategic Objective F4A & F3A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $504,075 $579,555 $579,883 $602,872

Offsetting Collections - Reimbursable 90,834 74,842 36,905 37,716

Total Operating Level $594,909 $654,397 $616,788 $640,588

Human Resources

Appropriated FTE 4,190 4,510 4,348 4,347

Other FTE 383 325 86 87

Total FTE (direct and reimbursable) 4,573 4,835 4,434 4,434

Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target 3,400 3,895 3,945 4,000 4,025

Actual 4,387 4,104 4,157

Met Y Y Y

Target N/A 2,048 2,260 2,069 2,135

Actual 2,008 2,151 2,019

Met Y N

Target N/A 92.0% 92.0% 92.0% 92.0%

Actual 91.2% 91.2% 91.5%

Met N N

Target N/A 332,194 339,565 314,008 314,560

Actual 362,849 295,316 328,750

Met Y Y

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

Number of Convictions (Ot) (L)

Conviction Rate (E) (L)

Conviction Efficiency Rate ($) (E) (L)

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing Resolution, 

the implementation of the new tax legislation, and improvements resulting from program efficiencies.

Criminal Investigations Completed 

(Ot) (L)

Table 3.2.3

Dollars in Thousands

IRS - 68
Description of Performance 

Enforcement of criminal statutes is an integral component of the IRS’ efforts to enhance 

voluntary compliance and enforce the tax laws. In FY 2006, abusive tax schemes and 

shelters remained a high investigative priority due to their egregious activities in areas of 

corporate fraud and tax avoidance of high-income individuals. Among the most effective 

tools available to combat abusive tax schemes was the use of parallel proceedings that 

enabled the IRS to enjoin promoters of abusive schemes from further activity while the 

criminal investigation proceeds. These initiatives focused on the thousands of individuals 

known to maintain offshore bank accounts while operating domestic businesses. 

Investigative priorities focused on Corporate Fraud, Abusive Tax Schemes, Refund 

Crimes, Non-Filers, Employment Tax, and Terrorist Financing. Performance levels 

remained high in FY 2006: 

• The referral acceptance rate (i.e., the ratio of internal referrals within the IRS received 

to the number of those cases that are accepted by CI) of 71.8 percent exceeded the 

five year high achieved in FY 2005 and total number of referrals accepted (445) was 

higher than last year; 

• Number of convictions was 2,019, falling short of the 2,260 target; 

• Conviction rate was 91.5 percent, higher than FY 2005 and within 99 percent of 

FY 2006 target; and 

• Cost of a conviction (Conviction Efficiency rate) was $328,750, almost $11,000 less 

than the FY 2006 target. 

In FY 2007 and continuing in FY 2008, the IRS will focus its investigative resources on 

legal source tax investigations by partnering with other law enforcement agencies to 

develop significant tax and other financial investigations. The IRS will also pursue 

investigations involving illegal source tax and other financial crimes, including money 

laundering, that adversely affect tax administration and combat fraudulent and financial 

crime schemes identified through improved case development efforts and bank secrecy 

investigations. 

ENF Budget Activity: Exam and Collections 

3A – Description 

Exam and Collections ($4,165,233,000 in direct appropriation and $11,637,000 from 

reimbursable programs) 

This budget activity funds programs that enforce the tax laws and compliance through 

examination and collection programs that ensure proper payment and tax reporting. The 

IRS - 69
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’ centralized 

collection activities via correspondence in the Compliance Services Collection 

Operation. It initiates contact and collects delinquent taxpayer liabilities through 

written notices and other means; 

• Automated Collections and Support supports the IRS’ centralized Automated 

Collection System (ACS). This program initiates contact and collects 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 executes 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 operates the service 

centers’ examination function, which initiates correspondence with taxpayers related 

to tax issues arising from claims on tax returns; 

• Tax Reporting Compliance – Field Exam determines taxpayers’ correct income levels 

and corresponding tax liabilities. This activity also applies the tax law to specific 

taxpayers in the form of determination letters, advance pricing agreements, and other 

determinations; 

• Appeals oversees an administrative review process that provides a channel for 

impartial case settlement before a case is docketed in a court of law; 

• Litigation represents the IRS in litigation and provides all other legal support for the 

IRS, including interpretation of the tax law; 

• Specialty Programs examines federal tax returns of businesses and individuals 

responsible for the filing and payment of employment, excise, estate and gift taxes. 

International exam programs involving U.S. citizens residing abroad, non-resident 

aliens, expatriates and other examinations involving other international issues (e.g., 

Foreign Tax Credit, Foreign Earned Income Exclusion) also are centrally managed in 

this functional area; 

• 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, Foreign Earned Income Exclusion); and 

• Communications & Liaison coordinates local government and liaison relationships; 

handle congressional, state, and national stakeholder relationships and issues; 

coordinate crosscutting issues including managing audits and legislative 

implementation; handle national media contacts and local media relationships; and 

ensure Servicewide compliance with Disclosure and Privacy laws. 

IRS - 70
3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Exam and Collections Strategic Objective F4A & F3A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $3,721,495 $3,919,275 $3,932,599 $4,165,233

Offsetting Collections - Reimbursable 13,287 10,948 11,386 11,637

Mandatory Appropriations - User Fees 6,000 0 0 0

Total Operating Level $3,734,782 $3,930,223 $3,943,985 $4,176,870

Human Resources

Appropriated FTE 43,160 43,045 42,264 43,060

Other FTE 56 47 105 107

Total FTE (direct and reimbursable) 43,216 43,092 42,369 43,167

Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target N/A 0.9% 0.9% 1.0% 1.0%

Actual 0.8% 0.9% 1.0%

Met Y Y

Target N/A N/A Baseline 87.0% 87.0%

Actual 85.9%

Met

Target N/A N/A Baseline 89.0% 89.0%

Actual 88.2%

Met

Target 80.0% 78.0% 80.0% 88.0% 90.0%

Actual 74.0% 77.0% 85.0%

MetN N Y

Target N/A N/A 92.0% 97.0% 97.0%

Actual 87.0% 89.0% 96.0%

Met Y

Target 7.1% 7.5% 8.2% 8.2%

Actual 7.5% 7.8% 7.3%

Met Y N

Target N/A N/A 1,759 1,932 1,808

Actual 1,514 1,701 1,832

Met Y

Target N/A 2.5% 2.3% 2.5% 2.7%

Actual 1.9% 2.2% 2.4%

Met N Y

Target N/A N/A 121 136 136

Actual N/A 121 128

Met Y

Examination Coverage - Individual 

(Oe) (L)

Field Exam Embedded Quality (Oe) 

(L)

Office Exam Embedded Quality (Oe) 

(L)

Examination Quality (LMSB) - 

Industry (Oe) (L)

Table 3.2.4

Dollars in Thousands

Examination Efficiency - Individual (E) 

(L)

Examination Quality (LMSB) - 

Coordinated Industry (Oe) (L)

Examination Coverage - Business 

(Corps. > $10M) (Oe) (L)

AUR Efficiency (E) (L)

AUR Coverage (Oe) (L)

IRS - 71
Exam and Collections Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target N/A 57.0% 52.0% 54.0% 54.0%

Actual 53.0% 54.0%

Met N Y

Target N/A N/A 1,650 1,723 1,751

Actual 1,514 1,677

Met Y

Target N/A N/A Baseline 86.0% 86.0%

Actual 84.2%

Met

Target Baseline 88.0% 88.0% 91.0% 92.0%

Actual 87.8% 88.5% 91.0%

Met Y Y Y

Collection Coverage - Units (Oe) (L)

Table 3.2.4 (Continued)

Collection Efficiency - Units (E) (L)

Field Collection Embedded Quality 

(Oe) (L)

Automated Collection System (ACS) 

Accuracy 

Key: Oe - Outcome Measure and E - Efficiency Measure and L - Long Term Goal

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing Resolution, the 

implementation of the new tax legislation, and improvements resulting from program efficiencies.

Description of Performance 

The IRS’ examination and collection programs are the primary contributors to the IRS’ 

strategic objective aimed at discouraging and deterring non-compliance by key 

contributors to the tax gap, particularly corporations, high-income individuals, and 

domestic and off-shore tax entities. 

The IRS continues to enforce the law across all sectors, but is focusing on corrosive 

activities of corporations, high income taxpayers, and other major violators of the tax 

code. These efforts are having a positive impact on collecting additional tax revenue. 

Enforcement revenue from all sources reached a record level of $48.7 billion in FY 2006. 

Targeting high-risk taxpayers improves IRS efficiency, reduces the burden on compliant 

taxpayers, and concentrates enforcement presence where it is most needed. 

For FY 2006, the IRS met or exceeded 83 percent of its enforcement performance targets. 

Focusing more on limited scope examinations and productivity enhancements including 

improved analytics, workload identification, and selection systems that targeted high-risk 

cases resulted in: 

• 7 percent increase in individual audits; 

• 18 percent increase in high income audits; 

• 8 percent increase in small-business audits; 

• 10 percent increase in automated underreporter closures; 

• 15 percent increase in collection case closures; and, 

• 9 percent increase in revenue received from collection activities. 

IRS - 72
The IRS continued its efforts in streamlining and improving its examination process, 

resulting in shortened cycle time for large corporate audits. The time from assigning a 

large corporate return to a revenue agent until the final closing decreased more than 18 

percent. The improvements to the examination process ultimately increased inventory 

turnover and closures. 

The IRS also met its examination coverage - individual, efficiency and embedded quality 

annual targets. Improvements in inventory management, decreases in cycle time, and 

focused issue training all contributed to improved productivity. Improved quality 

controls measuring critical elements of the examination, a reinforced focus on case 

quality to drive improvement efforts, and the delivery of business results for the third 

consecutive year all led to improved performance in FY 2006. The IRS will continue to 

reengineer its examination and collection procedures to reduce time, increase yield, and 

expand coverage. The IRS plans to build on its FY 2006 enforcement initiatives with 

emphasis on early identification of tax liabilities through increased audits and focused 

collection activities. 

In FY 2008, the IRS will focus its resources on targeting compliance of reporting, filing, 

payment, and other major contributors to the tax gap. Resources will be used to: 

• Increase the overall percentage of high-risk tax returns examined, such as 

multinational corporations, and collect a greater amount of unpaid taxes from filed 

and un-filed tax returns timely; 

• Expand the Automated Underreporter (AUR) program to target the estimated 5.1 

million taxpayers who may annually appear to misreport income based on third party 

information reporting. A new AUR site combined with expanded toll-free telephone 

service will improve the capability to reach more non-compliant taxpayers; and 

• Enhance the analysis of tax information and results of compliance research studies to 

better define and quantify the tax gap. Targeting high-risk taxpayers will improve 

IRS efficiency and reduce the burden on compliant taxpayers. It will also increase 

and focus the enforcement presence where it is most needed. 

ENF Budget Activity: Regulatory 

3A – Description 

Regulatory ($157,393,000 in direct appropriations) 

This budget activity funds the development and print of published guidance materials; 

interpretation of and guidance on tax laws; general legal services, rules and agreements, 

enforcement of regulatory rules, laws and approved business practices; supporting 

taxpayers in the areas of pre-filing agreements, determination letters, and advance pricing 

agreements and the Office of Professional responsibility. This includes the following 

program activities: 

• Tax Law Interpretation and Guidance interprets the tax law through published 

guidance, technical advice, and other technical legal services; 

IRS - 73
• General Legal Services provides advice to the IRS on non-tax legal issues, including 

procurement, personnel, labor relations, equal employment opportunity, fiscal law, 

tort claims and damages, ethics and conflict of interest; 

• Rulings and Agreements applies the tax law to specific taxpayers in the form of prefiling agreements, determination letters, advance pricing agreements, and other prefiling determinations and advice; 

• 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, annually receives and 

processes more than 15 million financial reports, and manages a centralized database 

of that information for the Financial Crimes Enforcement Network (FinCEN). The 

Fraud program follows the “money trail” to support the criminal investigation of 

tax evasion operations. Fraud Technical Advisors and Revenue Agents provide 

investigative leads and referrals to federal, state and local law enforcement agencies; 

and 

• Office of Professional Responsibility identifies, communicates, and enforces Treasury 

Circular 230 standards of competence, integrity, and conduct of those who represent 

taxpayers before the IRS, such as attorneys, certified public accountants (CPAs), 

enrolled agents, enrolled actuaries and appraisers, and other professionals. 

3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Regulatory Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $172,022 $209,611 $148,090 $157,393

Offsetting Collections - Reimbursable 187 251 0 0

Total Operating Level $172,209 $209,862 $148,090 $157,393

Human Resources

Appropriated FTE 1,605 1,979 1,221 1,260

Other FTE 2400

Total FTE (direct and reimbursable) 1,607 1,983 1,221 1,260

Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target 141,000 131,700 112,400 118,200 109,500

Actual 143,877 126,481 108,462

Met Y N N

Key: Ot - Output/Workload Measure

Table 3.2.5

TEGE Determination Case Closures 

(Ot)

Dollars in Thousands

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing Resolution, 

the implementation of the new tax legislation, and improvements resulting from program efficiencies.

IRS - 74
Description of Performance 

Due to major changes in certain filing processes, the IRS did not meet its FY 2006 plan 

for Tax Exempt and Government Entities (TE/GE) Determination Cases Closed. The 

implementation of a staggered amendment filing process for employee plans significantly 

changed the inventory mix. Over 40 percent of the 25,000 receipts were prototype plans 

that required more extensive review. These cases will not close until FY 2007, resulting 

in the closure of 3,600 fewer cases than originally planned. Additionally, recent 

increases in user fees for employee plan determinations resulted in a slight decrease in 

determination applications and ultimately 1,500 fewer projected closures. 

To stabilize the flow of determination receipts and mitigate the significant swings in 

workload experienced prior to FY 2006, the IRS will continue its roll-out of the staggered 

amendment process. The IRS also plans to test and pilot (with external partners) a new 

interactive software application for preparing determination applications designed to 

improve the quality of determination requests and establish the foundation for future 

electronic filing of these applications. 

Implementation and on-going use of alternative enforcement strategies through “Issue 

Management Teams” and Settlement Initiatives have rapidly identified abusive promoters 

and participants. Special attention to develop preparer penalty cases over the past several 

years continues in FY 2006, using Program Action Cases, Electronic Return Originator 

and EITC Due Diligence Visits, criminal investigations, and injunctions. To date, the 

IRS has more than 500 open return preparer investigations, a substantial increase over the 

same period last year. 

The IRS faces a wide variety of non-tax legal issues. In support of the IRS’ regulatory 

activities, proposed changes to Treasury Circular 230 (Regulations Governing Practice 

Before the Internal Revenue Service) were published in FY 2006. The changes were 

designed to address weaknesses in the current regulatory scheme to ensure that tax 

professionals are adhering to standards and following the law, a key objective to success 

in enforcing the tax laws. Highlights of the proposed changes include rules implementing 

new authority to impose a monetary penalties, opening the IRS enforcement proceedings 

to public scrutiny, limiting contingent fees in the federal tax arena, allowing expedited 

proceedings for egregious tax non-compliance, and eliminating un-enrolled return 

preparers to “limited practice” before the agency. 

In FY 2006, the IRS also developed a strategy to enhance its coordination and 

effectiveness of return preparer enforcement efforts and maximize resources and 

coverage of non-compliant preparers. The strategy includes an annual cross-functional 

meeting to discuss and evaluate the coming year’s preparer inventory with focus on 

identifying cases warranting attention from the prior year’s due diligence visits. 

IRS - 75
In FY 2006, General Legal Services (GLS) litigated cases involving practitioner 

questionable tax transactions, successfully defended an award protest for private debt 

collection services, negotiated a Memorandum of Understanding offering online tax 

return preparation and filing services, and drafted informant agreements concerning the 

recovery of taxes due. 

In FY 2007 and beyond, the IRS will continue to promote compliance with tax laws and 

regulations in the tax-exempt and government arena. The IRS’ FY 2007 initiative to 

bolster critical activities, such as determinations and voluntary compliance agreements, 

will continue in FY 2008. This initiative will maintain the integrity of the tax base and 

ensure charitable and retirement contributions serve the public purposes for which 

exemptions were created. In addition, the IRS will focus on the Office of Professional 

Responsibility disciplinary matters and continued activity to revamp automated systems 

to modernize and enhance compliance activities. 

IRS - 76
Operations Support 
Operations Support (OS) 

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 IRS’ information systems. 

The Operations Support budget request for FY 2008 is $3,769,587,000 in direct 

appropriations and 12,957 FTE. This is an increase of $250,359,000 or 7.1 percent, and 3 

FTE, over the FY 2007 Continuing Resolution (CR) Rate of $3,519,228,000 and 12,954 

FTE. 

Appropriation Detail Table 

Operations Support 

FY 2007 FY 2007 

President's Budget CR-rate

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Infrastructure 0 $864,403 0 $837,320 0 $873,146 0 $873,146 0 $908,095 0.00% 4.00%

Shared Services and Support 7,047 1,176,202 5,605 1,154,616 6,693 1,129,617 6,705 1,163,846 6,693 1,223,351 -0.18% 5.11%

Information Services 6,421 1,420,600 5,960 1,446,449 6,249 1,485,641 6,249 1,482,236 6,264 1,638,141 0.24% 10.52%

Subtotal New Appropriated Resources 13,468 $3,461,205 11,565 $3,438,385 12,942 $3,488,404 12,954 $3,519,228 12,957 $3,769,587 0.02% 7.11%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable 207 $21,710 10 $4,277 160 $50,608 160 $50,608 163 $56,731 1.88% 12.10%

50% Carryover 2,709

Mandatory Appropriations - User Fees 19,000 19,000 74,000 74,000 72,000 -2.70%

Available multi-year/no-year funds 37,704 37,076 28,018 28,018 4,333

Transfers In/Out

Subtotal Other Resources 207 $78,414 10 $63,062 160 $152,626 160 $152,626 163 $133,064 1.88% -12.82%

Total Resources Available for Obligation 13,675 $3,539,619 11,575 $3,501,447 13,102 $3,641,030 13,114 $3,671,854 13,120 $3,902,651 0.05% 6.29%

Obligations President's Budget

Dollars in Thousands

Enacted over CR-rate

% Change

Resources Available for Obligation

FY 2006 FY 2006 FY 2008

Table 3.1

IRS - 77
Budget Adjustment Table 

Operations Support 

FTE Amount

FY 2007 President's Budget 12,942 $3,488,404

CR-rate Adjustment 0 (29,252)

(37) ($36,408)

(37)

($511)

(511)

FY 2007 CR-rate 12,942 $3,459,152

Interappropriation Transfer Corrections to Budget Restructure 12 60,076

FY 2007 Operating Plan at CR-rate 12,954 $3,519,228

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $5,687

Base Adjustment 0 5,687

Maintaining Current Levels (MCLs) $104,500

Pay Annualization 0 6,970

Pay Inflation Adjustment 0 41,532

Non-Pay Inflation Adjustment 0 55,998

Efficiency Savings

Subtotal, Changes to Base $73,779

FY 2008 Base 12,917 $3,593,007

Program Changes:

Program Decreases/Savings: 0

Increased e-File Savings 0

Program Reinvestments: 0 $511

Increase Efficiency Through Submission Processing Site Consolidations 0 511

Program Increases:

Infrastructure Initiatives 0 $81,000

Upgrade Critical IT Infrastructure 0 60,000

Enhance Computer Security Incident Response Center (CSIRC) and Network Infrastru 0 21,000

Enforcement Initiatives 32 $79,433

Improve Compliance Estimates, Measures, and Detection of Non-Compliance 21 11,968

Improve Compliance Among Small Business and Self-Employed Taxpayers 0 15,248

Implement Legislative Proposals to Improve Compliance 0 23,045

Increase Compliance for Large Multinational Businesses 3 5,229

Expand Document Matching in Existing Sites 6 9,422

Establish New Document Matching - Kansas City 2 7,536

Increase Individual Filing Compliance 0 2,243

Increase Tax-Exempt Entity Compliance 0 3,206

Increase Criminal Tax Investigations 0 1,536

Taxpayer Service Initiatives 8 $16,147

Research Effect of Service on Taxpayer Compliance 8 5,000

Expand Volunteer Income Tax Assistance 0 1,147

Implement Taxpayer Assistance Blueprint 0 10,000

Subtotal, FY 2008 Program Changes 40 $176,580

Total, FY 2008 President's Budget Request 12,957 $3,769,587

FY 2008 Budget Highlights

Table 2.1

Dollars in Thousands

Appropriation: Operations Support

IRS - 78
Operating Levels Table 

Operations Support 

Appropriation Title: Operations Support FY 2006 

Enacted

FY 2007 

President's 

Budget

CR-rate 

Adjustment

FY 2007 

CR-rate

Proposed 

Reprogrammings

FY 2007 

Proposed 

Operating Plan 

at CR-rate

FY 2008 

President's 

Budget

FTE 13,468 12,942 0 12,942 12 12,954 12,957

Object Classification:

11.1 Full-Time Permanent Positions............................ $955,187 $966,762 ($65)

(17)

($82)

(422)

(7,953)

(7)

(7,551)

$966,697 $1,427 $968,124 $1,002,389

11.3 Other than Full-Time Permanent Positions......... 10,074 10,876 0 10,876 8 10,884 11,120

11.5 Other Personnel Compensation.......................... 29,287 30,796 30,779 0 30,779 34,983

11.8 Special Personal Services Payments................. 0 0 0 0 0 0 0

11.9 Personnel Compensation (Total)................... $994,548 $1,008,434 $1,008,352 $1,435 $1,009,787 $1,048,492

12.0 Personnel Benefits................................................ 304,231 301,675 301,253 329 301,582 313,697

13.0 Benefits to Former Personnel.............................. 62,037 58,955 51,002 0 51,002 52,504

21.0 Travel...................................................................... 30,717 33,047 33,040 159 33,199 34,313

22.0 Transportation of Things....................................... 17,926 19,013 0 19,013 0 19,013 19,470

23.1 Rental Payments to GSA...................................... 680,674 640,000 0 640,000 0 640,000 665,539

23.2 Rent Payments to Others...................................... 9 5 0 5 0 5 5

23.3 Communications, Utilities, & Misc........................ 319,403 316,493 308,942 38,922 347,864 368,398

24.0 Printing and Reproduction.................................... 52,855 52,731 0 52,731 0 52,731 53,983

25.1 Advisory & Assistance Services........................... 112,139 29,614 0 29,614 5,395 35,009 36,259

25.2 Other Services....................................................... 305,314 377,220 373,671 2,790 376,461 420,211

25.3 Purchase of Goods/Serv. from Govt. Accts......

(3,549)

... 57,614 60,353 0 60,353 0 60,353 61,808

25.4 Operation & Maintenance of Facilities................. 188,353 179,474 178,923 0 178,923 181,672

25.5 Research & Development Contracts................... 4,622 4,364 0 4,364 0 4,364 5,269

25.6 Medical Care......................................................... 10,005 10,005 0 10,005 0 10,005 10,245

25.7 Operation & Maintenance of Equipment............. 78,896 67,132 59,543 8,293 67,836 67,203

25.8 Subsistence & Support of Persons.....................

(551)

(7,589)

. 580 271 0 271 0 271 279

26.0 Supplies and Materials......................................... 26,875 21,252 0 21,252 240 21,492 22,723

31.0 Equipment.............................................................. 213,823 249,723 248,175 2,513 250,688 347,467

32.0 Lands and Structures........................................... 0 58,056 0 58,056 0 58,056 59,449

33.0 Investments & Loans............................................

(1,548)

. 00000 00

41.0 Grants, Subsidies.................................................. 0 0 0 0 0 0 0

42.0 Insurance Claims & Indemn................................. 584 587 0 587 0 587 601

43.0 Interest and Dividends................................. 00000 00

44.0 Refunds.................................................................. 0 0 0 0 0 0 0

91.0 Unvouchered.............................................. 00000 00

Total Budget Authority....................................... $3,461,205 $3,488,404 $3,459,152 $60,076 $3,519,228 $3,769,587

Budget Activities:

Infrastructure ...................................................

($29,252)

... $864,403 $873,146 $0 $873,146 $0 $873,146 $908,095

Shared Services & Support .................................... 1,176,202 1,129,617 1,120,621 43,225 1,163,846 1,223,351

Information Services ..........................................

($8,996)

... 1,420,600 1,485,641 1,465,385 16,851 1,482,236 1,638,141

Total Budget Authority....................................... $3,461,205 $3,488,404 $3,459,152 $60,076 $3,519,228 $3,769,587

Table 2.2

Dollars in Thousands

($20,256)

($29,252)

IRS - 79
OS Budget Activity: Infrastructure 

3A - Description 

Infrastructure ($908,095,000 in direct appropriation) 

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 equipment. This includes the following program activities: 

• Building Delegation oversees and manages the IRS's GSA-delegated buildings, 

including cleaning, maintenance, utilities, protections, administrative, recurring and 

one-time repair costs; 

• Rent provides resources for all of the IRS’ rent needs; and 

• 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. 

3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Infrastructure Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $757,908 $864,403 $873,146 $908,095

Offsetting Collections - Reimbursable 287 385 0 0

Total Operating Level $758,195 $864,788 $873,146 $908,095

Human Resources

Appropriated FTE 0 0 0 0

Other FTE 4 6 0 0

Total FTE (direct and reimbursable) 4 6 0 0

Includes Strategic Objective F4A

Measure FY 2005 FY 2006 FY 2007 FY 2008

Target

Actual

Met

There are no externally reported 

performance measures associated 

with this activity

Table 3.2.6

Dollars in Thousands

IRS - 80
Description of Performance 

The IRS continued to emphasize identification and implementation of cost savings within 

its infrastructure, in particular, rent costs. The IRS decreased rent costs in FY 2006 by 

over 2 percent from FY 2005 to $608 million. This was accomplished by identifying and 

completing 110 space reduction projects releasing a cumulative total of 878,000 square 

feet. These projects have annualized savings of $19.6 million. As a result of the flooding 

at the IRS Headquarter building, three projects (57,000 square feet) were maintained to 

house displaced employees. 

In FY 2007 and beyond, the IRS will continue to work to identify and implement rent 

reduction initiatives and leasing plans to minimize costs. These savings are critical for 

covering unfunded costs such as new mandates, budget rescissions, and pay raises. 

OS Budget Activity: Shared Services and Support 

3A – Description 

Shared Services and Support ($1,223,351,000 in direct appropriation, $50,990,000 from 

reimbursable programs, and $10,000,000 from user fees) 

This budget activity funds policy and management and IRS-wide support for research 

strategic planning, communications and liaison, finance, human resources, and equal 

employment opportunity and diversity services and programs. It also funds printing and 

postage, business systems planning, security, corporate training, legal services, 

procurement, and specific employee benefits programs. This includes the following 

program activities: 

• National Headquarters Management & 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 Internal 

Revenue Service, and builds partner relationships with key stakeholders (e.g., 

Congress, OMB, etc.). 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. Also, 

it 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; 

• 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 provides resources for shared cross-functional support such as 

copiers, postage meters, shredders, courier services, and P. O. Boxes; 

IRS - 81
• Printing and Postage provides operating divisions with printing and postage, 

including shipping of taxpayer and internal use materials; 

• Security protects employees, facilities and assets, and the confidentiality of taxpayer 

information; 

• Shared Services (excluding Space and Housing and Rent) provide addition services 

such as Public Transit Subsidy and Career Counselor Contract; 

• Communications & 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 Servicewide compliance with Disclosure and Privacy laws; 

• 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 

accreditation coordination with Treasury on the Federal Critical Infrastructure 

Protection Program; 

• Research provides resources for researching annual income, financial, and tax data 

from tax returns filed by individuals, corporations, and tax-exempt organizations; 

• 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; 

and 

• Benefit Payments provides resources to fund Workmen’s Compensation benefits and 

Unemployment Compensation payments. 

IRS - 82
3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Shared Services and Support Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $1,211,877 $1,176,202 $1,163,846 $1,223,351

Offsetting Collections - Reimbursable 10,216 13,844 44,990 50,990

Mandatory Appropriations - User Fees 0 0 20,000 10,000

Total Operating Level $1,222,093 $1,190,046 $1,208,836 $1,274,341

Human Resources

Appropriated FTE 7,084 7,047 6,705 6,693

Other FTE 101 171 140 143

Total FTE (direct and reimbursable) 7,185 7,218 6,845 6,836

Includes Strategic Objective F4A

Measure FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

Target

Actual

Met

Table 3.2.7

There are no externally reported 

performance measures associated 

with this activity.

Dollars in Thousands

Description of Performance 

The IRS continues to provide shared services to all IRS programs through various 

support programs including: facilities, management and administration of human 

resources, research, procurement, and security.

In FY 2006, the IRS introduced its Human Capital Strategic Implementation Plan. The 

plan links achievement of Treasury’s Human Capital (HC) Strategic Goals, the IRS’ 

Strategic Goals, and the IRS’ HC Strategic Goals outlined in the HC Strategic Plan 

(2005-2009). The plan also establishes measures to monitor performance against HC 

objectives, processes, and projects to ensure the IRS builds and maintains a workforce 

that can carry out its mission. 

The IRS remains committed to increasing employee engagement and employee 

satisfaction. The IRS’ Employee Engagement Surveys measure the percentage of IRS 

employees who feel they are in the right job, managed well, and are productive. In 

FY 2006, the IRS addressed Employee Engagement through programs that promote 

IRS - 83
employee development and continuity such as safety and security, training, succession 

planning and workplace conflict prevention. The IRS employee engagement score, as 

measured by the grand mean on Gallup’s survey, increased from 3.80 in 2005 to 3.82 in 

2006. 

Ninety-six percent of IRS systems are compliant, with 33 percent certified under the new 

more stringent National Institutes of Standards and Technology (NIST) standards. The 

IRS efforts in 2004 and 2005 were focused on security certification and accreditation of 

the network and infrastructure systems, which were achieved at the end of FY 2005. Our 

priority in FY 2006 was updating the security certification and accreditation of IRS 

business applications to comply with new process guidance issued by the Office of 

Management and Budget (OMB) and NIST. The remaining systems will be updated in 

FY 2007 and FY 2008. 

The IRS achieved Personal Identity Verification (PIV I) compliance by October 2005, as 

mandated by Homeland Security Presidential Directive 12 (HSPD-12). The IRS now 

leads the Treasury HSPD-12 Program to adopt an enterprise solution for PIV II through 

the implementation of new Federal identification cards. PIV I compliance focused on 

implementing standard processes for common identity proofing, registration and issuance 

that incorporate security and privacy requirements. The Treasury HSPD-12 enterprise 

solution, PIV II, focuses on government-wide uniformity and the issuance of new 

identification cards that are interoperable across the federal government. The IRS will 

continue to work collaboratively with other agencies to manage security costs as it 

addresses increased security requirements at government facilities nationwide. 

Research enables the IRS to develop strategies to combat specific areas of 

noncompliance, improve voluntary compliance, allocate resources more effectively, and 

reduce the tax gap. 

The National Research Program (NRP) demonstrates the importance of comprehensive 

compliance data. As part of the NRP, the IRS reviewed approximately 46,000 randomly 

sampled individual income tax returns from tax year 2001 – the first comprehensive 

compliance study for individual income tax returns since 1988. Returns for which 

reported information could not be independently verified were audited. An NRP 

reporting compliance study of 5,000 S corporation tax returns filed in 2003 and 2004 is 

currently underway. Data from the NRP reporting compliance study have been used to 

estimate the individual income tax component of the tax gap and to identify sources of 

noncompliance. Accurate NRP data provide a critical benchmark for determining the 

sources of noncompliance and for measuring changes in compliance rates over time. The 

IRS is also using the findings from the NRP to target examinations and other compliance 

activities better, thus increasing the dollar-per-case yield and reducing “no change” audits 

of compliant taxpayers. Innovations in audit techniques to reduce taxpayer burden, 

pioneered during the 2001 NRP, have been adopted in regular operational audits. In 

addition, Statistics of Income (SOI) gathered, analyzed, and published information, which 

was used internally as well as by a variety of federal agencies and other interested parties. 

IRS - 84
This information is used to analyze tax policy, project tax revenues, and to estimate the 

impact of tax law changes on tax collections. 

In FY 2007 and FY 2008, the IRS will implement new research projects in the following 

areas: update and initiate new NRP reporting compliance studies, examine the linkages 

between taxpayer service and compliance, and develop new tools to uncover patterns of 

noncompliance. 

OS Budget Activity: Information Services 

3A – Description 

Information Services ($1,638,141,000 in direct appropriation, $5,741,000 from 

reimbursable programs, and $62,000,000 from user fees) 

 

This budget activity funds staffing, equipment, and related costs to manage, maintain, and 

operate the information systems critical to the support of tax administration programs. 

The IRS’ business programs rely on these systems to process tax and information returns, 

account for tax revenues collected, send bills for taxes owed, issue refunds, assist in the 

selection of tax returns for audit, and provide telecommunications services for all 

business activities including the public’s toll-free access to tax information. These 

systems are located in a variety of sites, including the Martinsburg, Tennessee, and 

Detroit Computing Centers, Service Centers, and in other field office operations. Staffing 

funded by this activity develop and maintain the millions of lines of programming code 

supporting all aspects of tax-processing, as well as operate and administer the hardware 

infrastructure of mainframes, minicomputers, personal computers, networks, and a 

variety of management information systems. This includes the following program 

activities: 

• Tier B provides support to single owner, small to medium-sized investment projects 

using core data to support specialized functions; 

• Information Technology Services (ITS) Management provides support to the 

immediate office of the Associate CIO, ITS, and provides executive direction for the 

ITS organization and its divisions: Infrastructure, Architecture & Engineering; 

Business Systems Development; Enterprise Operations; Enterprise Networks; End 

User Equipment & Services; Web Services; and Electronic Tax Administration. This 

program also includes and funds the MITS Competitive Sourcing Office; 

• 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 information 

technology solutions that are responsive to customer business priorities and 

effectively meet functional and operational needs; 

IRS - 85
• Business Systems Development performs the analysis, design, development, testing, 

and implementation of approximately 85,000 application programs supporting critical 

tax processing, management information reporting, and financial and management 

support systems for the IRS. This program activity also supports external trading 

partner data exchanges with federal government agencies, state and local 

governments, and other third party entities. The program controls application source 

code and deploys applications to the production environment; 

• Enterprise Operations designs, develops, and maintains information technology 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, banks, etc.) 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 executing 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; 

• Web Services implements applications and technologies for IRS employees; 

• End User Equipment and Services maintains the IRS’ automated business processes 

at headquarters and field sites, including technical systems support and applications 

software support to end users, maintaining legacy operations, 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; 

• Infrastructure Architecture & Engineering provides the systems architecture, 

sequencing plans, release management, and high-level engineered designs supporting 

information systems applications, software development tools, and infrastructure 

products necessary to build and evolve enterprise-wide business solutions; 

• MITS Management provides the management and oversight of investments in 

information technology, human capital investment, and other MITS operational 

priorities; 

• Information Technology Operational Security oversees FISMA reporting, including 

preparing for, conducting, and reporting Certification and Accreditation of systems 

using FIPS 199 and NIST 800-37; and self-assessments and annual testing of controls 

based on NIST 800-53; 

IRS - 86
• Information Technology Operational Security oversees FISMA reporting, including 

preparing for, conducting, and reporting NIST 800-26 self-assessments and annual 

testing of controls; 

• Information Technology Security Training provides training for FISMA reporting 

purposes; and 

• Information Technology Homeland Security Presidential Directive-12 oversees the 

use of Personal Identify 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. 

3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Information Services Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $1,485,802 $1,420,600 $1,482,236 $1,638,141

Offsetting Collections - Reimbursable 4,098 7,481 5,618 5,741

Mandatory Appropriations - User Fees 113,000 19,000 54,000 62,000

Total Operating Level $1,489,900 $1,428,081 $1,487,854 $1,643,882

Human Resources

Appropriated FTE 6,901 6,421 6,249 6,264

Other FTE 4 30 20 20

Total FTE (direct and reimbursable) 6,905 6,451 6,269 6,284

Includes Strategic Objective F4A

Measure FY 2005 FY 2006 FY 2007 FY 2008

Target

Actual

Met

There are no externally reported 

performance measures associated 

with this activity.

Dollars in Thousands

Table 3.2.8

IRS - 87
Description of Performance 

In FY 2007 and FY 2008, the IRS will continue to provide new technology solutions and 

improve work processes. In addition, the IRS will enhance efficiencies in tax 

administration operations by delivering modernized information systems to front-line IRS 

programs. 

Information technology solutions are the most effective and efficient means of increasing 

the number of IRS contacts with taxpayers by increasing the volume of transactions, and 

offers a greater variety of faster alternatives to file and pay their tax obligations. 

Information technology solutions also enhance the IRS’ ability to identify noncompliance and to combat tax avoidance schemes that contribute to the tax gap. 

The IRS’ FY 2008 Budget provides base funding to develop and continue projects 

selected for the FY 2007 and 2008 investment portfolio. The FY 2008 selected projects 

fall into five major categories as described below: 

• Decision Analytics (DA) - In FY 2008, the IRS is investing in several strategic IT 

projects to enhance compliance and customer service through the development of 

better case selection tools. Technologies being pursued in FY 2008 include 

predictive model development, data mining and data marts/data warehouse 

technologies. 

• Case Creation: Electronically build issue and assign workload - Many current 

production environment (CPE) systems rely, in part, on manual (paper) processes to 

build, assign and track cases. In FY 2008, these investments target near or mid-term 

enhancements to CPE systems and enable the migration from manual processes to 

electronic processes. Enabling technologies being pursued in FY 2008 include 

document imaging and document management and research of third party data 

sources. 

• Case Processing - These IT investments significantly augment and may, over time, 

replace CPE systems that bring new tools to improve customer service and/or 

increase casework. Other FY 2008 projects provide automation for discrete manual 

tasks that are very time consuming by leveraging available electronic data to prepopulate templates and perform preliminary analytics and centralize the availability 

of critical customer contact information. 

IRS - 88
• E-Filing/Self-Service - In FY 2008, these investments will expand the taxpayer’s 

ability to electronically interact with the IRS, whether filing or for self-service 

capabilities. Other projects anticipated in FY 2008 will expand electronic filing 

services that are central to the IRS’ overall e-file strategy. 

In addition, in FY 2008, the IRS will continue to develop and test the automated 

Correspondence Imaging System and improve FISMA compliance. Maintaining the 

infrastructure, modernizing our information systems and developing better tools will 

allow the IRS to operate more efficiently with improved productivity. 

IRS - 89
Business Systems 

Modernization 
Business Systems Modernization (BSM) 

Appropriation Description 

The Business Systems Modernization (BSM) appropriation provides resources for the 

planning and capital asset acquisition of information technology to modernize the IRS’ 

business systems. The program combines best practices and expertise in business 

solutions and internal management from IRS, business, and technology to develop a 

world-class tax administration system that fulfills the revenue collection requirements of 

the United States as well as taxpayers’ needs and expectations. 

The Business Systems Modernization budget request for FY 2008 is $282,090,000 in 

direct appropriations and 317 FTE. This is an increase of $85,280,000 or 43.3 percent, 

and no change in FTE, over the FY 2007 Continuing Resolution (CR) rate of 

$196,810,000 and 317 FTE. 

Appropriation Detail Table 

Business Systems Modernization 

FY 2007 FY 2007 

President's Budget CR-rate

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Business Systems Modernization 317 $242,010 317 $158,702 317 $212,310 317 $196,810 317 $282,090 0.00% 43.33%

Subtotal New Appropriated Resources 317 $242,010 317 $158,702 317 $212,310 317 $196,810 317 $282,090 0.00% 43.33%

Other Resources:

Recoveries $4,361

Offsetting Collections - Reimbursable

Available multi-year/no-year funds $115,777 101,433 $97,112 $97,112 $136,790

Transfers In/Out

Subtotal Other Resources 0 $115,777 0 $105,794 0 $97,112 0 $97,112 0 $136,790 0.00% 40.86%

Total Resources Available for Obligation 317 $357,787 317 $264,496 317 $309,422 317 $293,922 317 $418,880 0.00% 42.51%

Obligations Budget

Dollars in Thousands

Enacted over CR-rate

% Change

Resources Available for Obligation

FY 2006 FY 2006 FY 2008

Table 3.1

IRS - 90
Budget Adjustment Table 

Business Systems Modernization 

FTE Amount

FY 2007 President's Budget 317 $212,310

CR-rate Adjustment 0 (15,500)

FY 2007 CR-rate 317 $196,810

Interappropriation Transfer Corrections to Budget Restructure 0 $0

FY 2007 Operating Plan at CR-rate 317 $196,810

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $21,886

Base Adjustment 0 21,886

Maintaining Current Levels (MCLs) $1,245

Pay Annualization 0 226

Pay Inflation Adjustment 0 1,019

Non-Pay Inflation Adjustment 0 $0

Subtotal, Changes to Base 0 $23,131

FY 2008 Base 317 $219,941

Program Changes:

Program Increases: 0 $62,149

Fund Business Systems Modernization 0 62,149

Subtotal, FY 2008 Program Changes 0 $62,149

Total, FY 2008 President's Budget Request 317 $282,090

FY 2008 Budget Highlights

Table 2.1

Dollars in Thousands

Appropriation: Business Systems Modernization

IRS - 91
Operating Levels Table 

Business Systems Modernization 

Appropriation Title: Business Systems 

Modernization FY 2006 

Enacted

FY 2007 

President's 

Budget

CR-rate 

Adjustment

FY 2007 

CR-rate

Proposed 

Reprogrammings

FY 2007 

Proposed 

Operating Plan 

at CR-rate

FY 2008 

President's 

Budget

FTE 317 317 317 317 317

Object Classification:

11.1 Full-Time Permanent Positions............................ $33,969 $33,968 ($12,873)

($12,873)

(2,627)

$21,095 $21,095 $34,896

11.3 Other than Full-Time Permanent Positions......... 446 447 0 447 447 470

11.5 Other Personnel Compensation.......................... 626 625 0 625 625 658

11.8 Special Personal Services Payments................. 0 0 0 0 0 0

11.9 Personnel Compensation (Total)................... $35,041 $35,040 $22,167 $0 $22,167 $36,024

12.0 Personnel Benefits................................................ 9,772 9,772 7,145 7,145 10,034

13.0 Benefits to Former Personnel.............................. 0 0 0 0 0 0

21.0 Travel...................................................................... 187 187 0 187 187 187

22.0 Transportation of Things....................................... 0 0 0 0 0 0

23.1 Rental Payments to GSA...................................... 0 0 0 0 0 0

23.2 Rent Payments to Others...................................... 0 0 0 0 0 0

23.3 Communications, Utilities, & Misc........................ 0 0 0 0 0 0

24.0 Printing and Reproduction.................................... 0000 0 0

25.1 Advisory & Assistance Services........................... 0 0 0 0 0 0

25.2 Other Services....................................................... 147,498 117,799 0 117,799 117,799 172,102

25.3 Purchase of Goods/Serv. from Govt. Accts......... 0000 0 0

25.4 Operation & Maintenance of Facilities................. 0000 0 0

25.5 Research & Development Contracts................... 0 0 0 0 0 0

25.6 Medical Care......................................................... 0 0 0 0 0 0

25.7 Operation & Maintenance of Equipment............. 5,700 5,700 0 5,700 5,700 7,095

25.8 Subsistence & Support of Persons...................... 0000 0 0

26.0 Supplies and Materials......................................... 0 0 0 0 0 0

31.0 Equipment.............................................................. 43,812 43,812 0 43,812 43,812 56,648

32.0 Lands and Structures........................................... 0 0 0 0 0 0

33.0 Investments & Loans............................................. 0000 0 0

41.0 Grants, Subsidies.................................................. 0 0 0 0 0 0

42.0 Insurance Claims & Indemn................................. 0 0 0 0 0 0

43.0 Interest and Dividends................................. 0000 0 0

44.0 Refunds.................................................................. 0 0 0 0 0 0

91.0 Unvouchered.............................................. 0000 0 0

Total Budget Authority....................................... $242,010 $212,310 $196,810 $0 $196,810 $282,090

Budget Activities:

IT Investments $242,010 $212,310 $196,810 $196,810 $282,090

Total Budget Authority....................................... $242,010 $212,310 $196,810 $0 $196,810 $282,090

Table 2.2

Dollars in Thousands

($15,500)

($15,500)

($15,500)

IRS - 92
BSM Budget Activity: Business Systems Modernization 

3A – Description 

Business Systems Modernization ($282,090,000 in direct appropriation) 

This budget activity funds the planning and capital asset acquisition of information 

technology to modernize the IRS’ business systems, including related contractual costs. 

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

management from the IRS, business, and technology to develop a world-class tax 

administration system that fulfills the revenue collection requirements of the United 

States as well as taxpayers’ needs and expectations. The IRS’ BSM program is required 

to submit for approval 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 information technology, that permit timely and accurate delivery of 

tax account and other tax-related information while ensuring security and privacy. The 

BSM program is responsible for the acquisition management activities of all the 

modernization projects and provides the direct interface to the PRIME Integrated Product 

Teams. 

BSM projects are developed and funded on a useable-segment basis—each request for 

funding for each project covers an identifiable portion of the project’s development. As 

projects are completed and have demonstrated successful operation, they leave the BSM 

fold and their operational costs are funded from the Operations Support account. BSM 

funding by project is shown in the chart below. 

Project Activities

FY 2006 

Budget

FY 2007 

Budget

FY 2008 

President's 

Budget

Customer Account 

Data Engine 

Release content master plan which includes a mid-year release to add 

new functionality and January release adding tax law changes

60,000 58,500 58,500

Modernized e-File Complete forms 1041 and 990T and development of form 1040

27,881 20,000 55,802

Accounts 

Management 

Services

Provides a Common User Interface for access and update of taxpayer 

accounts managed by CADE Systems and IMF/CFOL/IDRS

21,518 0 28,983

Filing & Payment 

Compliance 6,984 3,500

Common Services Initiate work on cross-domain prioritization and sharing projects known 

as Common Services Project for Portal Upgrade 0 0 16,000

Core Infrastructure 44,610 43,500 39,150

 Architecture, Integration & Management 30,124 39,500 35,100

5,893 2,310 2,310

Total Capital Investments $197,010 $167,310 $235,845

BSM Labor 45,000 45,000 46,245

Total BSM Program Request $242,010 $212,310 $282,090

NOTE: The IRS will work to allocate BSM staffing costs to the projects for the FY 2009 President's Budget.

FY 2008 BSM Project Activities

(Dollars in Thousands)

Management Reserve

IRS - 93
3B – Budget and Performance Plan

Budget and Performance by Budget Activities 

Business Systems Modernization Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

Enacted1 Enacted CR-rate Budget

Financial Resources

Appropriated Resources $203,360 $242,010 $196,810 $282,090

Offsetting Collections - Reimbursable

Total Operating Level $203,360 $242,010 $196,810 $282,090

Human Resources

Appropriated FTE 0 317 317 317

Other FTE

Total FTE (direct and reimbursable) 0 317 317 317 1

 FY 2005 Enacted excludes Salaries and Expenses.

Includes Strategic Objective F4A

Measure

BSM Project Cost Variance by Release/Subrelease (E)

FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target N/A 10% 10% 10%

Actual -46%

Met N

Target N/A 10% 10% 10%

Actual 0%

Met Y

Target N/A 10% 10% 10%

Actual 32%

Met N

Target N/A 10% 10% 10%

Actual -53%

Met N

Target N/A 10% 10% 10%

Actual 0%

Met Y

Target N/A 10% 10% 10%

Actual 15%

Met N

MeF R4 MS3 (Modernized e-file)

CADE R 1.3.2 FS06 (Customer 

Account Data Engine)

CADE R 2.1 MS4 (Customer 

Account Data Engine)

F&PC R1.2 MS4a (Filing and 

Account Payment Compliance)

MeF R3.2 MS4 (Modernized e-file)

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing 

Resolution, the implementation of the new tax legislation, and improvements resulting from program efficiencies.

Table 3.2.9 

F&PC R1.2 MS3 (Filing and 

Account Payment Compliance)

Dollars in Thousands

IRS - 94
Business Systems Modernization Includes Strategic Objective F4A

Measure

BSM Project Schedule Variance by Release/Subrelease (E)

FY 2005 FY 2006 FY 2007 FY 2008

Target1

Target N/A 10% 10% 10%

Actual 0%

Met Y

Target N/A 10% 10% 10%

Actual 6%

Met Y

Target N/A 10% 10% 10%

Actual -2%

Met Y

Target N/A 10% 10% 10%

Actual 59%

Met N

Target N/A 10% 10% 10%

Actual 0%

Met Y

Target N/A 10% 10% 10%

Actual 7%

Met Y

1

 Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing 

Resolution, the implementation of the new tax legislation, and improvements resulting from program efficiencies.

MeF R4 MS3 (Modernized e-file)

CADE R 1.3.2 FS06 (Customer 

Account Data Engine)

CADE R 2.1 MS4 (Customer 

Account Data Engine)

F&PC R1.2 MS3 (Filing and 

Account Payment Compliance)

F&PC R1.2 MS4a (Filing and 

Account Payment Compliance)

MeF R3.2 MS4 (Modernized e-file)

Table 3.2.9 (Continued)

Description of Performance 

Core IT systems investments support services to both taxpayers and other government 

agencies and enforcement by providing the IRS frontline employees with the basic tools 

necessary to perform their jobs. A modernized and secure infrastructure will enhance the 

speed, security, and functionality necessary to keep pace with an automated economy. 

The IRS must keep pace with the growing demand and volume of electronic submission, 

payment, and refund transactions for tax remittances and offer taxpayers a variety of 

faster alternatives for satisfying tax obligations. These efforts will continue to place 

greater demand on the IRS to provide a modernized and secure IT infrastructure. 

Furthermore, a successful modernization program is critical to supporting long-term tax 

administration operations. Successful program delivery by the IRS during the past two 

years demonstrates that the IRS’ BSM program has established a foundation of 

disciplined program management processes and controls. The IRS executed BSM 

projects with a degree of sustained success not seen since program inception. This 

accomplishment is especially noteworthy in that the program achieved this while 

transitioning from a contractor-led program to an IRS-led program. 

The IRS has developed an IT Modernization Vision and Strategy (MV&S) for its IT 

systems for 2008 that align with and support the IRS Strategic Plan. Through the MV&S 

process, the IRS developed a plan showing how the IRS can effectively meet IT 

modernization goals in an incremental approach that provides near-term value. The plan 

IRS - 95
focuses on delivery of four major tax administration systems – Customer Account Data 

Engine (CADE), Account Management Services (AMS), Modernized e-File (MeF), and 

Filing & Payment Compliance (F&PC) – addressing the IRS’ strategic business priorities. 

The plan also capitalizes on IT infrastructure initiatives and smaller IT project initiatives 

to support a unified approach in continued improvement to program operations. 

Throughout FY 2006, the IRS modernization efforts continued to focus on its four core 

tax administration systems designed to provide more sophisticated tools to taxpayers and 

the IRS employees. The following highlights the IRS’ efforts in FY 2006 in advancing 

these core systems: 

• Introduced new CADE capabilities for the 2006 filing season. CADE supports 

faster refunds to taxpayers, issuing direct deposit refunds between one and seven 

days faster, and paper refunds four to thirteen days faster than refunds generated by 

the legacy system. CADE posted over 7.3 million returns – more than a 400 

percent increase over the previous year, and issued 7 million taxpayer refunds 

exceeding $3.4 billion. CADE improved taxpayer service by allowing access to 

account information up to seven days sooner, increasing the likelihood of single 

telephone call resolution, faster issue detection, and more timely account settlement. 

CADE is expected to post between 25 and 30 million returns in 2007. 

• Began the development of Account Management Services (AMS), a project that 

will enable real-time access to taxpayer account information, to support much faster 

resolution of taxpayer issues by IRS customer service representatives. AMS, in 

conjunction with CADE, will finally enable the IRS to break the weekly update 

system paradigm that has existed since the 1960s, enabling the IRS to begin to 

provide settlement of all account information by end-of-day, similar to what one 

expects from major private-sector financial institutions. The first release of AMS is 

due the summer of 2007 to support real-time address change capability in CADE 

and enable faster notice processing for a number of math-error notices. 

• Implemented Release 3.2 of its Modernized e-File (MeF) project, which enabled the 

filing of both federal and state returns concurrently for corporations (Forms 1120 

and 1120-S) and tax-exempt organizations (Form 990). In 2006, the MeF platform 

supported an e-filing mandate for certain large corporations and tax-exempt entities. 

Tax returns for large corporations typically include hundreds, or even thousands, of 

pages. Receiving the data electronically improves the accuracy of the tax return, 

reduces the volume of paper tax returns submitted to IRS Service Centers, and 

accelerates the examination process by having all tax return data available 

electronically. Electronic capture of return information enables the IRS to quickly 

deliver the data to analysts and agents for compliance risk assessment and action. 

In 2006, MeF accepted over 550,000 corporate returns. The IRS is expanding the 

MeF taxpayer base in 2007 to include Partnership Income tax returns (Form 1065), 

eventually enabling nearly 2.7 million small business and self-employed taxpayers 

to benefit from electronic filing. The IRS is in the planning stage to migrate the 

1040 individual tax return to the Modernized e-File platform. The development and 

IRS - 96
implementation of MeF 1040 capability will be completed by January 2011, with 

initial planned deployment for January 2009. 

• Completed the first release of the F&PC strategy. F&PC functionality analyzes tax 

collection cases and separates cases that require direct IRS involvement from those 

that can be handled by Private Collection Agencies (PCAs). The introduction of 

PCAs is expected to:

o Assist the IRS by addressing the volume of delinquent taxpayers that exceeds the 

IRS’ capacity to work, approximately 250,000 cases per year; and 

o Help eliminate backlogs in the large number of outstanding tax liabilities, which 

have grown by 118 percent over the last 12 years, increasing tax revenue and 

reducing the tax gap. 

Tax administration in the 21st century requires improved IRS information technology. 

For FY 2007 and FY 2008, the IRS is committed to continuing to make improvements in 

technology, including: 

• 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. 

IRS - 97
Health Insurance Tax 

Credit Administration 
Health Insurance Tax Credit Administration (HITCA) 

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 Public Law 107-210, the Trade Act of 2002. 

The IRS administers specific components of this credit: enrollment, payment and 

compliance. The Department of Labor, state workforce agencies, and the Pension 

Benefits Guaranty Corporation are responsible for determining potentially eligible Health 

Care Tax Credit (HCTC) taxpayers. 

The HITCA budget request for FY 2008 is $15,235,000 in direct appropriations and 17 

FTE. This is an increase of $389,000 or 2.6 percent, and no change in FTE, over the 

FY 2007 Continuing Resolution (CR) rate of $14,846,000 and 17 FTE. 

Appropriation Detail Table 

Health Insurance Tax Credit Administration 

FY 2007 FY 2007 

President's Budget CR-rate

FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT FTE AMOUNT

New Appropriated Resources:

Health Insurance Tax Credit Administration 17 $20,008 10 $19,993 17 $14,846 17 $14,846 17 $15,235 0.00% 2.62%

Subtotal New Appropriated Resources 17 $20,008 10 $19,993 17 $14,846 17 $14,846 17 $15,235 0.00% 2.62%

Other Resources:

Recoveries

Offsetting Collections - Reimbursable

Available multi-year/no-year funds

Transfers In/Out

Subtotal Other Resources 0 $0 0 $0 0 $0 0 $0 0 $0 0.00% 0.00%

Total Resources Available for Obligation 17 $20,008 10 $19,993 17 $14,846 17 $14,846 17 $15,235 0.00% 2.62%

FY 2006

Table 3.1

Obligations Budget

Dollars in Thousands

Enacted over CR-rate

% Change

Resources Available for Obligation

FY 2006 FY 2008

IRS - 98
Budget Adjustment Table 

Health Insurance Tax Credit Administration 

FTE Amount

FY 2007 President's Budget 17 $14,846

CR-rate Adjustment 0 $

FY 2007 CR-rate 17 $14,846

Interappropriation Transfer Corrections to Budget Restructure

FY 2007 Operating Plan at CR-rate 17 $14,846

Changes to Base:

Technical Adjustments to FY 2007 Base due to CR 0 $0

Base Adjustment 0 $

Maintaining Current Levels (MCLs) $389

Pay Annualization 0 15

Pay Inflation Adjustment 0 82

Non-Pay Inflation Adjustment 0 292

Subtotal, Changes to Base 0 $389

 FY 2008 Base 17 $15,235

Program Changes:

Subtotal, FY 2008 Program Changes 0 $0

Total, FY 2008 President's Budget Request 17 $15,235

FY 2008 Budget Highlights

Table 2.1

Dollars in Thousands

Appropriation: Health Insurance Tax Credit Administration

0

0

IRS - 99
Operating Levels Table 

Health Insurance Tax Credit Administration 

Appropriation Title: Health Insurance Tax Credit 

Administration FY 2006 

Enacted

FY 2007 

President's 

Budget

CR-rate 

Adjustment

FY 2007 

CR-rate

Proposed 

Reprogrammings

FY 2007 

Proposed 

Operating Plan 

at CR-rate

FY 2008 

President's 

Budget

FTE 17 17 17 17 17

Object Classification:

11.1 Full-Time Permanent Positions............................ $2,241 $2,302 $0 $2,302 $2,302 $2,386

11.3 Other than Full-Time Permanent Positions......... 0 0 0 0 0 0

11.5 Other Personnel Compensation.......................... 22 23 0 23 23 23

11.8 Special Personal Services Payments................. 0 0 0 0 0 0

11.9 Personnel Compensation (Total)................... $2,263 $2,325 $0 $2,325 $0 $2,325 $2,409

12.0 Personnel Benefits................................................ 348 358 0 358 358 371

13.0 Benefits to Former Personnel.............................. 0 0 0 0 0 0

21.0 Travel...................................................................... 142 144 0 144 144 148

22.0 Transportation of Things....................................... 0 0 0 0 0 0

23.1 Rental Payments to GSA...................................... 191 193 0 193 193 198

23.2 Rent Payments to Others...................................... 0 0 0 0 0 0

23.3 Communications, Utilities, & Misc........................ 0 0 0 0 0 0

24.0 Printing and Reproduction.................................... 0000 0 0

25.1 Advisory & Assistance Services........................... 0 0 0 0 0 0

25.2 Other Services....................................................... 17,057 11,819 0 11,819 11,819 12,102

25.3 Purchase of Goods/Serv. from Govt. Accts......... 0000 0 0

25.4 Operation & Maintenance of Facilities................. 0000 0 0

25.5 Research & Development Contracts................... 0 0 0 0 0 0

25.6 Medical Care......................................................... 0 0 0 0 0 0

25.7 Operation & Maintenance of Equipment............. 0 0 0 0 0 0

25.8 Subsistence & Support of Persons...................... 0000 0 0

26.0 Supplies and Materials......................................... 7 7 0 7 7 7

31.0 Equipment.............................................................. 0 0 0 0 0 0

32.0 Lands and Structures........................................... 0 0 0 0 0 0

33.0 Investments & Loans............................................. 0000 0 0

41.0 Grants, Subsidies.................................................. 0 0 0 0 0 0

42.0 Insurance Claims & Indemn................................. 0 0 0 0 0 0

43.0 Interest and Dividends................................. 0000 0 0

44.0 Refunds.................................................................. 0 0 0 0 0 0

91.0 Unvouchered.............................................. 0000 0 0

Total Budget Authority....................................... $20,008 $14,846 $0 $14,846 $0 $14,846 $15,235

Budget Activities:

Health Insurance Tax Credit Administration............... $20,008 $14,846 $0 $14,846 $14,846 $15,235

Total Budget Authority....................................... $20,008 $14,846 $0 $14,846 $0 $14,846 $15,235

Table 2.2

Dollars in Thousands

IRS - 100
HITCA Budget Activity: Health Insurance Tax Credit Administration 

3A - Description 

Health Insurance Tax Credit Administration ($15,235,000 in direct appropriation) 

The HITCA budget activity funds costs to administer a refundable tax credit for health 

insurance to qualified individuals. 

The Trade Adjustment Assistance Reform 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 HCTC is to ensure participating eligible taxpayers receive the 

credit to which they are entitled. 

The Act 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. This activity maintains the 

administrative and direct support for the HITCA Program Office and the staff charged 

with administering the program for the Service. 

IRS - 101
3B – Budget and Performance Plan 

Budget and Performance by Budget Activities 

Health Insurance Tax Credit Administration Strategic Objective F4A

FY 2008

Resource Level FY 2005 FY 2006 FY2007 President's 

 Enacted Enacted CR-rate Budget

Financial Resources

Appropriated Resources $34,562 $20,008 $14,846 $15,235

Offsetting Collections - Reimbursable

Total Operating Level $34,562 $20,008 $14,846 $15,235

Human Resources

Appropriated FTE 17 17 17 1

Other FTE

Total FTE (direct and reimbursable) 17 17 17 17

Includes Strategic Objective F4A

Measure FY 2005 FY 2006 FY 2007 FY 2008

Target N/A Baseline $14.25 $13.97

Actual N/A $12.95 

Met N/A

Target Baseline 99 97 97

Actual 106 99

Met Y

Table 3.2.10

Sign-up Time

Cost per Taxpayer Served

Dollars in Thousands

7

Description of Performance 

The IRS administers specific components of this credit: enrollment, payment and 

compliance. The Department of Labor, state workforce agencies, and the Pension 

Benefits Guaranty Corporation are responsible for determining potentially eligible HCTC 

taxpayers. 

In FY 2005, the IRS implemented a new HCTC service delivery model that saved 

approximately $20 million. In FY 2006, the IRS continues to implement new business 

processes to identify, prevent, and recover erroneous payments. 

For FY 2007 and continuing in FY 2008, the IRS will maintain a balanced approach to 

administering the credit -- encouraging eligible taxpayers to comply and seeking to 

improve compliance through research that will guide future HCTC operation changes. 

IRS - 102
Supporting Material 
Section 4 – Supporting Materials 

4A – Human Capital Strategy Description 

The IRS’ approximate 104,000 employees represent approximately 81 percent of the 

Department of the Treasury’s total employee population. The IRS workforce is diverse in 

multiple dimensions, including job series, demographic mix, and geographic distribution. 

The IRS has a large seasonal workforce that accounts for as much as 23 percent of the 

IRS’ employee population during peak workload seasons. Between 76 and 77 percent of 

the IRS annual budget is dedicated to financing the IRS’ “human capital.” To ensure that 

strategic management of its human capital resources is aligned with the IRS mission, the 

four human capital strategic goals were established to help focus the use of these 

resources: 

Goal 1: Continually Assess and Shape the Workforce to Efficiently Accomplish the 

Service’s 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. 

In FY 2006, the IRS published its first Human Capital Strategic Plan (HCSP) for 

FY 2005 - 2009 and the Human Capital Strategic Implementation Plan (HCSIP) for 

FY 2006-2007. These Plans focus on these strategic goals and address IRS workforce 

challenges. 

In terms of critical workforce challenges, the IRS and continues to make headway in the 

area of leadership succession. Over 60 percent of IRS’ current executive cadre will be 

eligible to retire within the next five years – half are eligible to retire by the end of 2009. 

The anticipated loss poses obvious concerns about IRS leadership continuity and clearly 

supports the need for aggressive leadership succession planning. 

Leadership Retirement Eligibility through FY 2011 

Optional Retirement Eligibility 

 OnBoards 

2006 

+Prior 2007 2008 2009 2010 2011 TOTAL 

Management Type 

Department Managers 374 35 31 21 17 17 24 145 

Executives 280 83 14 23 18 19 9 166 

Front-line Managers 6371 1028 310 368 351 324 285 2666 

Senior Managers 1534 342 119 137 109 98 93 898 

TOTAL 8559 1488 474 549 495 458 411 3875 

Based on National Finance Center data. Run date 11/28/06

IRS - 103
To address this challenge, the IRS has established an overarching Leadership Succession 

Program that focuses on the recruitment, development and retention of an enterprise-wide 

talent pool of highly skilled leaders across the organization to effectively and efficiently 

support tax administration. 

In addition to leadership attrition, the IRS continues to focus on the attrition rates of its 

overall workforce. The following table is based on data from the TreasNet database and 

shows the number and percent of the current permanent employee population that will be 

eligible to retire through 2009. 

Number 

Eligible 2007 

Percent 

Eligible 2007 

Number 

Eligible 2008 

Percent 

Eligible 2008 

Number 

Eligible 2009 

Percent 

Eligible 2009 

22,490 22.59% 26,747 26.87% 31,250 31.39% 

Based on minimum eligibility for Optional Retirement. 

To mitigate the anticipated loss of talent and ensure continued workforce competency, 

the IRS is using the following strategies to maintain the optimum skill/competency level 

of its workforce: 

1. Selecting Mission Critical Occupation (MCO) new hires with increased 

education/experience; 

2. Established a FY 2007 IRS-wide Retention Plan to retain employees who possess 

mission critical skills and competencies; 

3. Expanded use of competency assessment tools to include additional MCO and 

target technical knowledge; 

4. Developed and implemented the Leadership Succession Plan redesign to complete 

succession management strategies and increase workforce management readiness; 

and 

5. Provided quality continued professional education, e-learning and other training 

to sustain and/or increase the proficiency of the current workforce. 

IRS - 104
Human Resources Table 

Table 4.1

Changes in Full Time Equivalents

Direct and Reimbursable

FY 2006 FY 2007 FY 2008

Base: Year-end Actual from Prior Year 94,282 92,846 93,718

Increases:

Reason #1: Adjusted to enacted level1 3,158 3,683

Reason #2: Program Reinvestment 805 11

Reason #3: Program Increase 1,672 1,584

Reason #4: Transfer of ICDE from Justice 329

Reason #5: Increase in reimbursable work 112 14

Reason #6:

Subtotal, Increases 6,076 3,694 1,598

Decreases:

Reason #1: Base Adjustment (2230) (937)

(605)

(1018)

(1424) (1184)

(3659)

(1318)

(461)

(7512) (2822) (2502)

Reason #2: Rescission

Reason #3: Operating Plan FTE Adjustment

Reason #4: Program Cost Savings & Efficiencies

Reason #5: Adjusted to operating level/under 

Reason #6: CR-rate Adjustment

Reason #7: Decrease in reimbursable work

Subtotal, Decreases

Year-end Actual/Estimated FTEs 92,846 93,718 92,814

Net Change from prior year SOY to budget year EOY

1 FY 2005 enacted level was 97,440 and FY 2006 enacted level was 96,529.

IRS - 105
4B – Information Technology Strategy 

In the spring of 2006, the IRS unveiled a comprehensive vision for IRS future operations 

beyond 2006. The Modernization Vision & Strategy (MV&S) establishes a plan that 

drives investment decisions, addressing the priorities for modernizing front-line tax 

administration and establish technical capabilities provided by the infrastructure and 

security. The MV&S reflects the priorities of the organization across all IRS business 

units and is coordinated with Treasury’s overall Enterprise Architecture. It serves as a 

guide for where investments should be focused. This strategy allows IRS to develop 

defined, strategically prioritized, costs and a ranked list of proposed IRS modernization 

projects (investments) for a given year. Whenever possible, the MV&S approach 

leverages existing systems and, as necessary, the program will include new development 

to optimize capacity, manage program costs, and deliver functionality in smaller and 

more frequent releases. The IRS expects this approach to deliver business value sooner 

and at lower risk. 

The IRS has 31 investments that are defined as major because they meet one or more of 

the criteria set by OMB in Circular A-11 for a major investment: (1) requires special 

management attention because of the investment’s importance to the mission or function 

of the IRS; (2) is for financial management purposes and obligates more than $500,000 

annually; (3) has significant program or policy implications; (4) has high executive 

visibility; (5) has high development, operating, or maintenance costs; or (5) is defined as 

a “major” by the Treasury or IRS’ capital planning and investment control process. An 

Exhibit 300 has been submitted as part of the FY 2008 Congressional Budget Submission 

for each of these 31 investments. 

The IRS Business Systems Modernization (BSM) program has delivered significant 

benefits, and particularly in recent years, the program has demonstrated a consistent 

record of success – replacing major segments of antiquated systems with modernized 

capabilities. 

Following two consecutive successful years in FY 2004 and FY 2005, the IRS 

modernization effort in FY 2006 continued to sustain a track record of successful 

implementation of modernized capabilities and remains positioned to continue this 

success in FY 2007. A key success factor has been focusing more directly on managing 

contractor performance and leveraging IRS resources. This approach is integrated into 

the Modernization Vision and Strategy (MV&S) efforts, in which a key feature is to 

leverage the existing production environment. This enables greater cost effectiveness and 

speeds delivery of IRS modernization. 

IRS - 106
BSM Major Information Technology (IT) activities address internal and external 

priorities through a balanced investment portfolio fully aligned with core IRS strategic 

priorities: 

• Taxpayer Service + Enforcement = Compliance 

• Modernization of IRS technology 

The BSM Program has successfully implemented all projects delivered in the second half 

of FY 2005 and the first half of FY 2006 – attaining nearly all cost and schedule 

milestones as planned while delivering desired business benefits and functionality. 

During the summer of FY 2005, the IRS coordinated the development of a revised 

performance methodology with Treasury Inspector General for Tax Administration 

(TIGTA) and General Accountability Office (GAO). For the first time, the BSM 

Expenditure Plan introduces a performance measurement methodology based on greater 

control, visibility, and consistent treatment of baseline and variance calculations. 

In FY 2006, BSM continued to stabilize and institutionalize program management 

improvements. BSM continues to deliver projects with attention to cost and schedule 

targets and to providing benefits to taxpayers. On a program-wide basis, for four projects 

in progress (i.e., results represent current performance for projects exiting milestone 3 for 

F&PC, MeF and CADE), all four have met both cost and schedule targets. 

As BSM program management capabilities have continued to mature, the ability to more 

consistently establish and manage reasonable cost and schedule baselines has similarly 

improved. BSM has expanded its financial and schedule management capabilities to 

include finer levels of granularity and controls than previously available in past 

Expenditure Plans. 

Some specific examples of success over the past few fiscal years include the following: 

Customer Account Data Engine: 

• Supports faster refunds to taxpayers than is possible with legacy systems. CADE 

allows direct deposit refunds to be issued between one and seven days faster and 

paper refunds to be issued four to 13 days faster than refunds generated by the legacy 

system.

• During the 2006 Filing Season, CADE posted more than 7.3 million returns – a nearly 

fourfold increase over the previous year and issued more than $3.4 billion in refunds 

to nearly 7 million taxpayers; 

• Improves taxpayer service by allowing IRS customer service representatives access to 

current information up to seven days sooner, increasing the likelihood of single 

telephone call resolution; and

• Faster issue detection and more timely account settlement. 

IRS - 107
e-Service:

• Taxpayer and third party transcript request processing cycle time is reduced from 

15+ days to minutes; 

• To date e-Services has processed more than 1,276,000 requests for transcripts via the 

Registered User Portal and more than 7.4 million via the Employee User Portal since 

launch to employees and Telephone Routing Interactive System on May 16, 2005; 

• Disclosure Authorization cycle is reduced from 26 days to same day;

• Electronic Account Resolution cycle time reduced by up to two weeks, eliminating 

delay between initial contact and issue resolution; and 

• Prior to e-Services, 70 million, five percent, of the 1.4 billion Form 1099 documents 

could not be attached to specific taxpayer accounts due to Taxpayer Identification 

Number (TIN) matching errors. The IRS estimated that unreported income due to 

non-filing or invalid TINs accounts for $42 billion in income that cannot be taxed, 

which equates to roughly $93 million per year in tax underpayment. e-Services 

reduces this error rate to less than one percent (approximately $10 million), enabling 

recovery of much of this underpayment. 

Filing and Payment Compliance: 

• Provides a government/industry partnership enabling private collection agencies to 

assist the IRS by addressing the volume of delinquent taxpayers that exceeds the IRS’ 

capacity to work. Between now and 2017, this partnership will result in 

approximately 2.6 million delinquent cases receiving treatment that would otherwise 

have gone unworked; 

• Reduces backlogs in outstanding tax liabilities, which have grown by 118% over the 

last 12 years; 

• Improves overall economic outcomes by reducing the large number of unresolved 

cases (by approximately 250,000 cases/year), which undermine the fairness of the tax 

system. Reduction of unresolved cases also improves the prevailing attitudes of 

compliant taxpayers toward their tax obligation, reducing adverse effects associated 

with the current volume of unresolved cases; and 

• Improves financial performance by generating an estimated gross revenue of $2.8 

billion through 2017 and reducing taxpayer burden. 

Modernized e-File: 

• Major productivity and service efficiency gains helping taxpayer service and 

enforcement: 

o Taxpayer Service – IRS employees have all original documents available online 

and in real time. This capability eliminates back-end re-keying, data entry and 

enables responsive taxpayer support. Prior to MeF, only a limited subset of these 

documents was available – requiring retrieval of source documents – a time 

consuming process, which could take several weeks;

o Enforcement – Online abilities and 100 percent data access improves the ability of 

revenue agents to perform compliance and enforcement activities in a timely and 

accurate manner. Corporate returns can now be reviewed in a matter of days or 

weeks as opposed to previous 18 month-long cycle times. 

IRS - 108
• More than $34 million in savings to taxpayers in reduced tax preparation fees, 

postage, and storage; 

• Fully compatible with industry standard architectures, consistent with long term 

technology trends, and aligned with IRS third party partners who are also 

standardizing on Extensible Markup Language (XML)-based technologies. This 

capability reduces industry burden, greatly simplifies exchanging data in a secure 

fashion, and reduces the costs incurred by taxpayers and IRS business partners to do 

business with the IRS; and 

• Error rate is reduced to four percent, which compares favorably to the error rate of 

18 percent for returns processed in paper-based systems; and MeF processed Form 

7004 (filing extension for corporations), Form 1120 as well as Form 990PF 

(information return for private foundations) at higher than expected volumes – twice 

the anticipated number of return receipts over projections, while still achieving 

performance goals – a significant reduction in burden and time for corporate and taxexempt taxpayer.

IRS - 109
Summary of IT Resources Table IT Investments Portfolio Information Technology Investments (from Exhibit 53) (in $ Millions) Major IT Investments 1 Program Alignment Operating Plan Obligations Operating Plan % Change from FY 05 Obligations to FY 06 President's Budget % Change from FY 06 to FY 07 President's Budget % Change from FY 07 to FY 08 Account Management Services Program (AMS) - Major Modernization 0.0 0.0 8.5 8.5% 21.0 147.1% 33.6 60.0% Appeals Automation Environment (AAE) Exam/Collections 12.4 9.4 13.1 39.4% 14.8 13.0% 15.3 3.4% Automated Collection System (ACS) - Major Tax Collection 0.0 0.0 0.0 0.0% 4.8 0.0% 5.0 4.0% Business Masterfile (BMF) Submission Processing 11.9 11.7 14.2 21.4% 12.3 -13.4% 12.7 3.3% CEAS - Major Taxpayer Service 0.0 0.0 0.0 0.0% 7.5 0.0% 7.6 1.3% CEAS - Major Taxpayer Service 0.0 0.0 0.0 0.0% 5.4 0.0% 5.4 0.0% CEAS - Major Taxpayer Service 0.0 0.0 0.0 0.0% 2.1 0.0% 2.2 4.8% Correspondence Imaging System (CIS) - Release 2 - Major Tax Collection 0.0 0.0 0.0 0.0% 10.3 0.0% 10.6 2.9% Counsel Automated Systems Environment (CASE) Exam/Collections 26.3 25.8 27.0 4.7% 28.5 5.6% 29.2 2.5% Criminal Investigation Management Information System (CIMIS) - Major Criminal Investigations 0.0 0.0 0.0 0.0% 2.6 0.0% 2.6 0.0% Criminal Investigation Management (CIMIS) Criminal Investigations 0.0 0.0 0.0 0.0% 0.0 0.0% 0.0 0.0% Criminal Investigation Management (CIMIS) Criminal Investigations 0.0 0.0 0.0 0.0% 2.6 0.0% 2.6 0.0% Customer Account Data Engine (CADE) Submission Processing/Tax Collection 98.9 98.9 118.6 19.9% 120.4 1.6% 72.4 -39.9% Customer Account Data Engine (CADE) Same as above 92.6 92.6 104.7 13.0% 110.9 6.0% 62.6 -43.6% Customer Account Data Engine (CADE) Same as above 5.2 5.2 2.3 -55.8% 2.2 -4.3% 2.3 4.5% Customer Account Data Engine (CADE) Same as above 1.1 1.1 11.6 954.5% 7.3 -37.1% 7.5 2.7% Electronic Federal Tax Payment System (EFTPS) - Major Tax Collection 0.0 0.0 0.0 0.0% 69.9 0.0% 69.9 0.0%

 Electronic Federal Tax Payment System (EFTPS) Tax Collection 0.0 0.0 0.0 0.0% 2.1 0.0% 2.2 4.8%

 Electronic Federal Tax Payment System (EFTPS) Tax Collection 0.0 0.0 0.0 0.0% 67.8 0.0% 67.7 -0.1%

Electronic Fraud Detection System (EFDS) Tax Collection 11.9 11.9 11.1 -7.0% 11.3 2.1% 11.6 2.5%

 Electronic Fraud Detection System (EFDS) Tax Collection 8.0 8.0 7.5 -5.9% 7.8 3.6% 8.0 2.6%

 Electronic Fraud Detection System (EFDS)

Earned Income Tax Credit 3.9 3.9 3.5 -9.4% 3.5 -1.0% 3.6 2.4%

Electronic Management System (EMS)

IRS Submission Processing 10.6 10.8 9.8 -9.3% 8.9 -9.2% 9.1 2.2%

Enterprise Data Warehouse (EDW) Exam/Collections 7.6 7.6 7.0 -8.6% 7.0 0.0% 7.3 5.0%

e-Services Examinations 41.8 41.8 14.2 -66.0% 14.1 -0.7% 14.4 2.1%

 e-Services Examinations 36.9 36.9 0.0 -100.0% 0.0 0.0% 0.0 0.0%

 e-Services Examinations 4.9 4.9 14.2 189.8% 14.1 -0.7% 14.4 2.1%

Examination Desktop Support System (EDSS) - Release 2 - Major Examinations 3.6 3.6 7.0 94.4% 4.8 -31.4% 5.0 3.1%

Excise Files Information Retrieval System (ExFIRS) - Major Exam/Collections 0.0 0.0 0.0 0.0% 6.5 0.0% 6.6 1.5%

Excise Tax e-File & Compliance (ETEC) Major Submission Processing 0.0 0.0 0.0 0.0% 13.6 0.0% 2.3 -83.1%

Filing and Payment Compliance (F&PC) (Blended) Exam/Collections 0.2 0.2 32.5 16150.0% 19.3 -40.6% 1.5 -92.2%

 Filing and Payment Compliance (F&PC) (Blended) Exam/Collections 0.0 0.0 28.1 0.0% 19.3 -31.3% 0.0 -100.0%

 Filing and Payment Compliance (F&PC) (Blended) Exam/Collections 0.2 0.2 0.2 0.0% 0.0 -100.0% 0.0 0.0%

 Filing and Payment Compliance (F&PC) (Blended) Exam/Collections 0.0 0.0 4.2 0.0% 0.0 -100.0% 1.5 0.0%

Financial Management Information System (FMIS) Tax Collection 4.5 4.5 2.5 -44.4% 5.9 136.0% 6.0 1.7%

Individual Master File (IMF) Submission Processing 11.9 10.1 12.7 25.7% 12.6 -0.8% 13.0 3.2%

Information Returns Processing (IRP) Submission Processing 6.9 7.3 7.4 1.4% 7.6 2.7% 7.9 3.9%

Integrated Collection System (ICS) Tax Collection 7.7 9.3 8.9 -4.3% 8.9 0.0% 9.2 3.4%

Integrated Customer Communications Environment (ICCE) Taxpayer Service 14.2 14.2 17.2 21.1% 17.0 -1.3% 17.9 5.4%

Integrated Data Retrieval Systems (IDRS) Tax Collection 16.7 16.7 17.9 7.2% 17.6 -1.7% 18.3 4.0%

Integrated Financial System/CORE Financial System (IFS) Treasury-Financial 12.8 12.8 22.0 71.9% 16.6 -24.5% 17.0 2.4%

 Integrated Financial System/CORE Financial System (IFS) Treasury-Financial 9.4 9.4 18.4 95.7% 12.9 -29.9% 14.8 14.7%

Integrated Financial System/CORE Financial System (IFS) Treasury-Financial 0.0 0.0 0.0 0.0% 0.0 0.0% 0.0 0.0%

Integrated Financial System/CORE Financial System (IFS) Treasury-Financial 3.4 3.4 3.6 5.9% 3.7 2.8% 2.2 -40.5%

Integrated Submission and Remittance Processing System (ISRP) Submission Processing 12.4 13.7 18.0 31.3% 16.6 -7.7% 17.0 2.2%

Interim Revenue Accounting Control System (IRACS) Treasury-Financial 1.8 1.8 0.7 -61.1% 0.8 14.3% 0.8 0.0%

Modernized e-File (MeF) Submission Processing 69.2 69.2 69.9 1.0% 61.5 -12.0% 79.6 29.4%

 Modernized e-File (MeF) Submission Processing 61.0 61.0 57.4 -5.8% 48.2 -16.0% 61.4 27.4%

 Modernized e-File (MeF) Submission Processing 6.4 6.4 11.7 81.5% 12.0 2.7% 12.3 2.6%

 Modernized e-File (MeF) Submission Processing 0.0 0.0 0.0 0.0% 0.5 0.0% 5.2 940.0%

 Modernized e-File (MeF) Submission Processing 1.8 1.8 0.8 -54.7% 0.8 -3.5% 0.7 -12.5%

Service Center Recognition/Image Processing System (SCRIPS) Submission Processing 17.4 17.4 16.0 -8.1% 17.0 6.0% 17.4 2.5%

Tax Return Database (TRDB) Submission Processing 4.6 4.6 6.9 50.0% 4.8 -30.4% 5.0 4.0%

Travel Reimbursement and Accountin Treasury ) g System (TRAS -Financial 1.8 1.8 1.5 -16.7% 1.4 -6.7% 1.5 7.1%

IRS EA Investment 0.0 0.0 4.2 0.0% 4.4 4.8% 4.7 5.8%

Total 407.1 405.1 468.6 15.7% 570.2 21.7% 531.8 -6.7%

FY 2007 FY 2008 FY 2005 FY 2006

IRS - 110
Summary of IT Resources Table Major IT Investments 1 Program Alignment Operating Plan Obligations Operating Plan % Change from FY 05 Obligations to FY 06 President's Budget % Change from FY 06 to FY 07 President's Budget % Change from FY 07 to FY 08 Infrastructure Investments IRS Consolidated Infrastructure (Infrastructure) 312.4 312.4 238.4 -23.7% 323.0 35.5% 380.3 17.7% IRS Consolidated Infrastructure (Infrastructure) 312.4 312.4 238.4 -23.7% 323.0 35.5% 346.5 7.3% IRS Consolidated Infrastructure (Infrastructure) - BSM Portion 0.0 0.0 0.0 0.0% 0.0 0.0% 33.8 0.0% IRS Consolidated Infrastructure (Common Services) 0.0 0.0 8.8 0.0% 0.0 -100.0% 16.0 0.0% IRS Consolidated Infrastructure (ICommon Services)-Web Portal 0.0 0.0 8.8 0.0% 0.0 -100.0% 16.0 0.0% IRS Consolidated Infrastructure (Office Automation) 326.2 326.3 349.2 7.0% 259.9 -25.6% 300.3 15.5% IRS Consolidated Infrastructure (Office Automation) 326.2 326.3 349.2 7.0% 259.9 -25.6% 300.3 15.5% IRS Consolidated Infrastructure (Office Automation) - BSM Portion 0.0 0.0 0.0 0.0% 0.0 0.0% 0.0 0.0% IRS Consolidated Infrastructure (Security) 57.0 57.0 51.1 -10.4% 51.1 0.0% 77.3 51.3% IRS Consolidated Infrastructure (Security) 57.0 57.0 51.1 -10.4% 51.1 0.0% 72.9 42.7% IRS Consolidated Infrastructure (Security) - BSM Portion 0.0 0.0 0.0 0.0% 0.0 0.0% 4.4 0.0% IRS Consolidated Infrastructure (Telecommunications) 288.5 288.5 245.5 -14.9% 213.3 -13.1% 258.4 21.1% IRS Consolidated Infrastructure (Telecommunications) 288.5 288.5 245.5 -14.9% 213.3 -13.1% 256.4 20.2% IRS Consolidated Infrastructure (Telecom) - BSM Portion 0.0 0.0 0.0 0.0% 0.0 0.0% 1.0 0.0% IRS Consolidated Infrastructure (Telecom) - EITC 0.0 0.0 0.0 0.0% 0.0 0.0% 1.0 0.0% Total 984.1 984.2 893.0 -9.3% 847.3 -5.1% 1032.3 21.8%

Total Major Investments 1391.2 1389.3 1361.6 -2.0% 1417.5 4.1% 1564.1 10.3%

Non-Major IT InvestmentsProgram and Management Support Programs 170.5 167.5 185.5 10.7% 214.9 15.8% 236.2 9.9%

Information Technology Non-Major Systems/Programs 185.1 190.9 196.7 3.0% 98.1 -50.1% 101.6 3.6%Improvement Project Systems (FY 07 and 08 based on MV&S) 49.3 49.3 56.7 15.0% 45.4 -19.9% 46.6 2.6%Tier B Infrastructure 0.0 0.0 2.6 0.0% 7.3 182.6% 7.4 1.4%

Security Audit and Analysis System 0.0 0.0 6.6 0.0% 10.8 63.6% 11.0 1.4%

BSM Architecture & Integration 0.0 0.0 0.0 0.0% 27.6 0.0% 62.7 127.2%BSM Management Reserve 5.8 5.8 13.0 124.1% 2.3 -82.3% 2.3 0.0%

Total 410.7 413.5 461.1 11.5% 406.4 -11.9% 467.8 15.1%

Total IT Investments 1,801.9 1,802.8 1,822.7 1.1% 1,823.9 0.1% 2,031.9 11.4%

1 Ma

IT Investments Portfolio

Information Technology Investments (from Exhibit 53) (in $ Millions)

jor IT projects include funding for the IRS’ staffing associated with direct management of Business Systems Modernization projects.

FY 2005 FY 2006 FY 2007 FY 2008

IRS - 111
Program Assessment Rating Tool (PART) Evaluation Table 

The IRS continues to provide full support and attention to the PART process and 

recommendations. The following are examples of how the IRS uses the PART process to 

make improvements: 

• The Taxpayer Advocate Service (TAS) established teams charged with creating an 

application that will capture time spent on cases while in the system (Phase I) as well 

as the development of a front end application to allow capture of time spent on a case 

outside of the system (Phase II). The System Acceptability Testing (SAT) of Phase I 

was completed in mid-June and has been followed by a separate stress test to ensure 

the timekeeping component does not negatively impact Taxpayer Advocate 

Management Information System (TAMIS) response times. The Request for 

Information Services (RIS) has been submitted and TAS expects to have Phase 2 

implemented before the close of 2007. 

• The PART program improvements for the Earned Income Tax Program (EITC) 

program provide for the increased monitoring of the EITC examination and closure 

programs. These improvements support the President’s Management Agenda (PMA) 

initiative for “Eliminating Improper Payments” and also provide a potential means to 

narrow the tax gap. In FY 2006, the IRS launched the second phase of its EITC 

return preparer strategy with emphasis on tracking and research. The IRS plans to 

further expand the program to include client audits of preparers penalized in FY 2005 

for Reverse Preparer Action Case treatment. 

• In May 2006, the IRS implemented its new Criminal Investigation (CI) information 

management system in compliance with a PART recommendation from FY 2005. 

This information management system will enhance program effectiveness by 

providing more timely information on investigative trends and issues that will 

increase casework accuracy. 

IRS - 112
PART Tax Collection 

PART Name: Tax Collection

Year PARTed: FY 2002

Rating: Results Not Demonstrated

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. Reviewing the effectiveness of the revised collection performance measures of 

workload coverage and efficiency. Information from these measures will be used in the 

development of the 2008 budget.

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.

1. Implementing new tools in 2007 to segment collection workload according to risk to 

ensure IRS takes the right action to secure delinquent taxes.

2. Implementing legislation - including strong taxpayer rights protections - allowing IRS to 

hire private collection agents to help secure delinquent tax debt (full implementation by 

January 2008).

Table 4.3

PART Evaluation

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. 

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.

IRS - 113
PART Earned Income Tax Credit 

PART Name: Earned Income Tax Credit

Year PARTed: FY 2002

Rating: Ineffective

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. Identifying paid tax return preparers with EITC error rates and using education and 

enforcement procedures to improve their performance.

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.

1. Conducting 500,000 examinations of EITC returns per year based on enhanced case 

selection systems.

2. Preventing $270 million in incorrect refunds in 2006 by detecting and correcting errors 

during return processing. 

Table 4.3

PART Evaluation

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.

1. The program has failed to reduce EITC erroneous payments to acceptable levels. 

While IRS prevents roughly $1 billion in erroneous EITC payments per year, 27 to 32 

percent of all EITC payments were still made in error for 1999. The magnitude of this error 

rate is the reason for the rating of “ineffective”. 

IRS - 114
PART Submission Processing 

PART Name: Submission Processing

Year PARTed: FY 2003

Rating: Moderately Effective

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. Using a single cost based efficiency measure by 2008 (cost per return processed). 

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 one 

percent error rate compared to five percent for paper filed returns, saving taxpayers time 

and money. Finally, according to the annual American Customer Satisfaction Results 

report electronic filers have high satisfaction rates.

3. Based on IRS’ recently completed tax gap study, approximately 13 percent of refund 

dollars (excluding earned income tax credit refunds) are paid in error. With current third 

party reporting and technology, IRS is unable to identify and prevent these errors during 

processing.

1. Seeking legislative changes to promote electronic filing, including greater authority to 

require electronically-filed returns.

2. Setting goals by 2007 for reduced taxpayer filing burden resulting from the time and 

expense of preparing and filing their returns. 

Table 4.3

PART Evaluation

This program processes 224 million tax returns and one and a half 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.

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.

IRS - 115
PART Taxpayer Service 

PART Name: Taxpayer Service

Year PARTed: FY 2004

Rating: Adequate

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. Researching the impact of taxpayer service programs on voluntary compliance and 

reporting findings by 2007.

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.

1. Converting to cost based efficiency measures for the 2007 budget (e.g., cost per call 

answered) and adding efficiency measures for service processes for management. 

(Delayed until 2008)

2. Improving the accuracy of tax law telephone information provided to taxpayers to 90 

percent accuracy by 2010. 

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.

Table 4.3

PART Evaluation

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.

IRS - 116
PART Taxpayer Advocate Service 

PART Name: Taxpayer Advocate Service

Year PARTed: FY 2004

Rating: Moderately Effective

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. Improving case quality to 91.5 percent by 2006, 93 percent by 2009, and 95 percent by 

2014. 

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.

1. Developing a unit cost measure for its casework by 2006 (delayed to 2007). 

2. Exploring other means to measure its effectiveness in solving systemic problems 

leading to taxpayer hardship. IRS will report its findings in 2006 for possible inclusion in its 

FY 2008 Budget. 

Table 4.3

PART Evaluation

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. 

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. 

IRS - 117
PART Criminal Investigations 

PART Name: Criminal Investigations

Year PARTed: FY 2005

Rating: Moderately Effective

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

Table 4.3

PART Evaluation

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.

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 between $312 and $353 

billion. Criminal Investigation is one of the major IRS programs intended to minimize this 

revenue loss.

3. Developing methods to improve case prioritization in 2006 to ensure that cases yield 

the greatest impact on compliance.

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.

1. Exploring methods for measuring the impact of criminal investigations on tax 

compliance. IRS will report on its progress by the end of 2006. 

2. Implementing a new information management system in 2006 to enhance investigative 

case tracking and improve efficiency. 

IRS - 118
PART Examinations 

PART Name: Examinations

Year PARTed: FY 2005

Rating: Moderately Effective

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. Introducing cost based efficiency measures by 2008 (e.g., enforcement 

revenue/program budget).

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 rate has grown 

from a low of 1.49 percent (i.e., less than two returns in one hundred audited) in 2001 to 

3.09 percent in 2005.

3. IRS has set long tern 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.

1. Researching tax compliance of S-corporations (a popular business form where profits 

are taxed only once passed through to the owners) based on a statistically valid sample of 

the filing population.

2. Improving tools for selecting the most productive audit cases by 2007 using the 

detailed compliance information gathered in the recent individual tax gap study. 

Table 4.3

PART Evaluation

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.

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 between $312 and $353 

billion. Examination is one of the major IRS programs intended to minimize this revenue 

loss.

IRS - 119
PART Retirement Savings Regulatory Program 

PART Name: Retirement Savings Regulatory Program

Year PARTed: FY 2006

Rating: Adequate

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

Table 4.3

PART Evaluation

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.

1. The Internal Revenue Service cooperates with the Department of Labor and the 

Pension Benefit Guarantee Corporation to protect retirement investors and to ensure that 

retirement related tax brakes are used for the intended purposes. Tax breaks to 

retirement plans to encourage savings total more than $100 billion per year.

3. IRS will improve efficiency, processing timeliness and case targeting through a new 

information management system and other inventory selection tools implemented in 2007. 

2. Preliminary data from the program's compliance study shows that retirement plans are 

in compliance with legal standards 80 percent of the time. The IRS is working to improve 

this level by increasing enforcement efforts and improving targeting. This compliance 

study is a critical element in this effort because it gives the IRS better information on the 

sources of non-compliance.

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.

1. IRS will introduce cost based efficiency measures by 2008.

2. IRS will work to nearly double enforcement efforts by 2011 in order to improve 

retirement compliance to 82 percent. 

IRS - 120
PART Health Care Tax Credit Administration 

PART Name: Health Care Tax Credit Administration

Year PARTed: FY 2006

Rating: Results Not Demonstrated

OMB Major Findings/Recommendations

Bureau Actions Planned or Underway

3. IRS will continue to focus on administrative changes to lower program cost and improve

taxpayer service.

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 Internal Revenue Service to 

enroll them. Another likely cause is the affordability of coverage to potential recipients. It 

is also possible that many of those identified as potentially eligible may ultimately not 

quality.

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.

1. IRS will work with other participating federal agencies to develop long term goals by 

2011 that capture the program's success to providing access to the tax credit to potential 

beneficiaries.

2. IRS will work with partner federal agencies to find ways to improve access to the tax 

credit for eligible workers.

Table 4.3

PART Evaluation

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 which participate in free trade agreements (e.g., the North 

America Free Trade Agreement).

1. The program's measures do not adequately capture the program's success in 

providing access to the credit to potential beneficiaries.

IRS - 121
IRS Performance Measures Summary Table and Data Dictionary Link 

FY 2003 FY 2004 FY 2005 FY 2006 

Planned FY 2006 Actual FY 2007 

Planned1

FY 2008 

Planned

Customer Service Representative (CSR) Level of Service Oe, L 80.1% 87.3% 82.6% 82.0% 82.0% 78.0% 81.0%

Customer Contacts Resolved per Staff Year E 8,318 8,015 7,585 7,477 7,414 7,702 7,880

Percent of Eligible Taxpayers Who File for EITC Oe N/A 80.0% 80.0% 80.0% * 80.0% 80.0%

Customer Accuracy - Tax Law Phones Oe 82.0% 80.0% 89.0% 90.0% 90.9% 91.0% 91.2%

Customer Accuracy - Accounts (Phones) Oe 88.2% 89.3% 91.5% 92.0% 93.2% 93.3% 93.4%

Timeliness of Critical Filing Season Tax Products to the Public Ot N/A 76.0% 91.4% 92.0% 83.0% 85.2% 92.0%

Timeliness of Critical Other Tax Products to the Public Ot N/A 76.0% 80.0% 85.0% 61.2% 79.6% 86.0%

Percent Individual Returns Processed Electronically Oe, L 40.0% 46.5% 51.1% 55.0% 54.1% 57.0% 61.6%

Percent of Business Returns Processed Electronically Oe, L N/A 17.4% 17.8% 18.6% 16.6% 19.5% 21.2%

Refund Timeliness - Individual (paper) Oe 98.8% 98.3% 99.2% 99.2% 99.3% 99.2% 99.2%

Taxpayer Self Assistance Rate E, L 51.0% 46.4% 42.5% 45.7% 46.8% 48.6% 51.4%

Examination Coverage - Individual Oe, L N/A 0.8% 0.9% 0.9% 1.0% 1.0% 1.0%

Field Exam Embedded Quality Oe, L N/A N/A N/A Baseline 85.9% 87.0% 87.0%

Office Exam Embedded Quality Oe, L N/A N/A N/A Baseline 88.2% 89.0% 89.0%

Examination Quality - Industry Oe, L 74.0% 74.0% 77.0% 80.0% 85.0% 88.0% 90.0%

Examination Quality - Coordinated Industry Oe, L 89.0% 87.0% 89.0% 92.0% 96.0% 97.0% 97.0%

Examination Coverage - Business Oe, L N/A 7.5% 7.8% 7.5% 7.3% 8.2% 8.2%

Examination Efficiency - Individual E, L N/A N/A 121 121 128 136 136

Automated Underreporter Efficiency E, L N/A 1,514 1,701 1,759 1,832 1,932 1,808

Automated Underreporter Coverage E, L N/A 1.90% 2.2% 2.3% 2.4% 2.5% 2.7%

Collection Coverage - units Oe, L N/A N/A 53.0% 52.0% 54.0% 54.0% 54.0%

Collection Efficiency - units E, L N/A N/A 1,514 1,650 1,677 1,723 1,751

Field Collection Embedded Quality Oe, L N/A N/A N/A Baseline 84.2% 86.0% 86.0%

Automated Collection System Accuracy Oe N/A 87.8% 88.5% 88.0% 91.0% 91.0% 92.0%

Criminal Investigations Completed Ot, L 3,766 4,387 4,104 3,945 4,157 4,000 4,025

Number of Convictions Ot, L N/A 2,008 2,151 2,260 2,019 2,069 2,135

Conviction Rate E, L N/A 91.2% 91.2% 92.0% 91.5% 92.0% 92.0%

Conviction Efficiency Rate($) E, L N/A 362,849 295,316 339,565 328,750 314,008 314,560

TEGE Determination Case Closures Ot 171,812 143,877 126,481 112,400 108,462 118,200 109,500

BSM Project Cost Variance by Release/Subrelease E N/A N/A N/A Baseline ** 10.0% 10.0%

BSM Project Schedule Variance by Release/Subrelease E N/A N/A N/A Baseline ** 10.0% 10.0%

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

g p g g j g p g

and improvements resulting from program efficiencies.

Performance Measures

* Data to estimate the eligibility rate will be available late in FY 2007..

FY 2008 IRS Performance Measures Summary Table

** Cost and Schedule variance is based on +/- 10% and is reported on several project releases/subreleases.

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Data Dictionary Link for Performance Measures: 

For detailed information about each performance measure, including definition, 

verification and validation, please go to: 

http://www.treas.gov/offices/management/dcfo/accountability-reports/2006-par/

Part_IV_Appendices.pdf

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