Internal Revenue Service: Assessment of Fiscal Year 2004 Budget Request and 2003 Filing Season Performance to Date
Published: 2003-04-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Internal Revenue Service (IRS) is responsible for collecting virtually all of the funds that pay for the federal government. For 2003, IRS expects to process 130 million individual income tax returns, issue 99 million refunds, receive 100 million telephone calls, and assist 4 million taxpayers face-to-face at IRS and volunteer offices. Most of these interactions with taxpayers occur during the January through April tax filing season. GAO was asked by the Subcommittee on Oversight, House Committee on Ways and Means, to assess the likelihood of IRS allocating more resources to a key priority, compliance; whether proposed spending on computer systems is justified; and filing season performance.
section_title: What GAO Found
paragraphs: IRS is requesting $10.4 billion and 101,043 FTEs, a dollar increase of about 5 percent over the fiscal year 2003 request. The 2004 budget request, like other recent requests, identifies compliance as one of IRS's top priorities for additional resources. IRS intends to fund some program enhancements from the requested budget increase and internal savings. Several factors, including lowered savings projections since the budget request was prepared, raise questions about IRS's ability to achieve all the savings and shift resources to compliance as planned. IRS's recent history raises the same questions, in part, because unbudgeted expenses, such as pay raises, have absorbed budget increases. IRS is requesting $2.1 billion in information technology. This includes $429 million for the agency's multiyear capital account that funds contractor costs for the Business Systems Modernization program, and $1.67 billion for information systems, primarily for operations and maintenance. In response to GAO's recommendation last year, IRS has begun to implement an information technology management process patterned after its systems modernization program. Until the process is fully implemented, IRS will have limited ability to develop supportable information systems budget requests. IRS's 2003 filing season performance has improved over last year. For example, IRS's telephone access has improved and the Web site has seen increased use. Such improvements represent a payoff from IRS's ongoing systems modernization investments and wider management improvements. Although IRS has not succeeded in reallocating staff to one of its priority needs, compliance, there will likely be increased potential for such reallocation as modernization proceeds. This will present Congress, in its oversight and appropriations roles, with significant opportunities to weigh in on IRS's overall strategy for better accomplishing its mission.

section_title: Letter
paragraphs: We are pleased to participate in the Subcommittee’s inquiry into Internal  Revenue Service’s (IRS) fiscal year 2004 budget request and 2003 tax filing  season performance.
With its mission to “provide America’s taxpayers with top quality service by  helping them understand and meet their tax responsibilities and by  applying the tax law with integrity and fairness to all,” IRS is responsible  for collecting most of the funds that pay for the federal government. To  carry out its mission, IRS has a budget of about $10 billion and staff of  about 100,000 full time equivalents (FTE). For 2003, IRS expects to process  130 million individual income tax returns, issue 99 million refunds, receive  100 million telephone calls, and assist 4 million taxpayers face-to-face at  IRS and volunteer offices.
As you requested, our statement discusses both IRS’s 2004 budget request  and its 2003 filing season performance. With respect to the budget, we  assessed the likelihood that IRS will be able to allocate more resources to  one of its key priorities, compliance, and whether the proposed spending  on some computer systems is justified. With respect to the filing season, we  assessed IRS’s performance in processing returns and providing assistance  to taxpayers.
Our assessment of the budget request is based on a comparative analysis of  IRS’s fiscal year 2003 and 2004 budget requests, supporting documentation,  and interviews with IRS officials. Our assessment of the filing season is  based on a comparison of IRS’s performance this year to last, site visits to  IRS processing centers and walk-in sites, and interviews with IRS and  Treasury Inspector General for Tax Administration (TIGTA) officials, tax  preparers, and other external stakeholders. We also reviewed IRS’s Web  site for usability and accessibility.
In summary, our assessment of IRS’s 2004 budget request shows that:   IRS is requesting 100,043 FTEs and $10.4 billion, an increase of about 5  percent over its fiscal year 2003 request. The 2004 budget request is one  of many that have identified compliance activities as among IRS’s top  priorities for receiving additional resources. These additional resources  were to be funded from budget increases, internally generated savings,  or both. Savings projections have been revised downward since the 2004  budget request was prepared, which raises questions about IRS’s ability  to achieve all the savings and shift resources to compliance as planned.  Further, IRS’s recent history shows that it has been unable to increase  resources in compliance, despite having made it a priority in budget  requests. In fact, for the most recent three full fiscal years—2000, 2001  and 2002—compliance resources have declined slightly. Reasons for this  include unfunded expenses consuming budget increases.
Another priority area for IRS is Information Technology (IT). IRS is  requesting about $2.1 billion and 7,986 staff years in information  technology resources for fiscal year 2004. This includes (1) $429 million  for the agency’s multiyear capital account that funds contractor costs  for the BSM program and (2) about $1.67 billion and 7,735 staff years for  information systems, of which $1.62 billion is for operations and  maintenance. In preparing its fiscal year 2004 budget request for the  operations and maintenance of information systems, IRS began to  implement an information technology portfolio management process  patterned after the one used for the BSM program. However, until IRS  fully implements planned process improvements, its ability to develop  supportable information systems budget requests will remain limited.
Our assessment of the 2003 filing season to date shows that:  IRS’s 2003 filing season performance has improved over last year, based  on the data we reviewed in key filing season activities—paper and  electronic processing, telephone assistance, IRS’s Web site, and walk-in  assistance. In particular, access to IRS’s telephone assistors has  improved and Web site usage has increased. While we cannot quantify  the connection between these results and IRS’s ongoing systems  modernization efforts, the improvement in filing season performance, in  part, represents a payoff from systems modernization.
subsections: section_title: IRS’s Fiscal Year 2004 Budget Request Includes Compliance, Taxpayer Service, and Information Systems as Priorities
paragraphs: For fiscal year 2004, IRS is requesting $10.4 billion, an increase of 5.3  percent over fiscal year 2003 requested levels, and 100,043 FTEs. IRS’s 2004  budget request is its second in a row to propose increased spending for  higher priority areas that would be funded, in part, with internal savings  redirected from other areas. Specifically, IRS proposes to devote an  additional $454 million and 3,033 more FTEs to enhance programs,  primarily in compliance and some customer service areas. As shown in  figure 1, $166 million of the enhancements would be funded from internal  savings with the remainder funded from the budget increase.
As we did in last year’s testimony on IRS’s 2003 budget request, we  commend IRS for identifying savings to be reinvested in operations to  improve IRS performance. This approach implements a key principal of  IRS’s long-term modernization effort. Under this approach, the  reengineering of IRS’s work processes—much of which is dependent on  investments in computer modernization—would automate or eliminate  work, improve productivity, and free staff time that could then be  redirected to higher priority customer service and compliance activities.
We provide some context for understanding the 2004 budget request in  figures 2 and 3 as shown in appendix I. In those figures, we illustrate how  IRS allocated expenditures and staff resources in fiscal year 2002, the most  recently completed year.
subsections: section_title: Current Projections and Recent History Raise Questions about Whether IRS Will Realize Some Priority Resource Reallocations
paragraphs: Revised projections developed since the 2004 budget request was prepared  raise questions about IRS’s ability to achieve all the savings projected and  shift resources to compliance as planned. In addition, some projected  savings are based on reengineering efforts that are not well defined.  Further, IRS’s recent history also shows that it has been unable to increase  resources in the compliance area despite having made it a priority in past  budget requests. In fact, for the most recent 3 full fiscal years—2000, 2001,  and 2002—compliance resources have declined slightly. Reasons for this  decline include unfunded expenses consuming budget increases and  workload increases in other essential operations.
subsections: section_title: IRS Has Revised Some Savings Shown in Its 2004 Budget Request
paragraphs: IRS has revised the savings associated with several reengineering efforts  identified in the 2004 budget request. Revisions this far in advance of the  start of the fiscal year are not a surprise. They do indicate that there is  some uncertainty associated with the budget request’s savings projections.
Four of the seven most significant reengineering efforts—in terms of FTEs  and dollars to be saved—will not achieve all of their projected savings  because the efforts were based on assumptions that will not be realized,  according to IRS data and officials. IRS now projects that the seven most  significant efforts will save 1,073 FTEs and $60.5 million, down from  original projections of 1,356 FTEs and $77.7 million.
IRS provided different reasons for why all savings will not be achieved for  the following individual efforts:   IRS’s effort to improve the efficiency of compliance support activities— the single most significant effort—was partially dependent on IRS  implementing individual compliance savings projects in 2003. This effort  was projected to save 394 FTEs and almost $26 million. However, due in  part to delays until 2004 to allow for additional testing, this effort is now  expected to save about 30 percent of the original projections through  the end of fiscal year 2004.
IRS’s effort to improve the efficiency of personnel services—the second  most significant effort—depended in part on the functions of a new  computer system to achieve most of its savings. This effort was  originally projected to save 222 FTEs and $14.6 million. According to  IRS officials, these functions will not be delivered on time due to  schedule delays. IRS officials have not determined the impact of this  delay and are currently assessing other potential approaches to achieve  savings in this area.
IRS officials said the remaining three of the seven most significant efforts  will achieve all or more of their projected savings. For example, the effort  to improve the efficiency of handling payments and returns, originally  projected to save 121 FTEs and $4.6 million, is now expected to have more  than double the savings, or 235 FTEs and $11.9 million, due to greater than  expected productivity. However, according to IRS officials, even when their  savings are combined, these three efforts will not save enough to offset the  reduced savings from the other four.
Reengineering efforts may not achieve all of their savings goals, in part,  because of the long time lag between when IRS begins developing its  budget request and when the fiscal year begins. As with most other federal  agencies, IRS usually begins formulating its budget request about 18  months before the start of the fiscal year and about 10 months before the  President submits his budget to Congress. With planning beginning so far  ahead of the budget’s actual execution, there are inevitably intervening  events, such as implementation delays with computer systems, that make  the assumptions upon which projections are based no longer realistic.
section_title: Some 2004 Reengineering Efforts Are Not Well Defined
paragraphs: Some of the reengineering efforts listed in the 2004 budget request are not  well defined, thus raising questions about whether they will achieve their  savings goals. For example:   IRS still is reviewing its procedures to identify ways to make tax return  processing more efficient. Although IRS projected this effort to save 203  FTEs and $6.9 million, it has not yet identified the operational areas that  will be reengineered. IRS officials said that the projected savings are  based on a 2 percent efficiency increase, but they are currently  determining how to achieve that goal.
The effort to improve the efficiency of personnel services noted above  also included numerous competitive outsourcing assessments affecting  several program areas that, according to the budget request, would  result in a significant reduction of staffing. However, in response to our  request for more information, IRS was unable to provide details on the  type or number of specific assessments, program areas that would be  affected, how this effort would lead to reduced staffing, or the amount  of net savings expected.
According to IRS budget officials, IRS uses its budget formulation process  to establish productivity goals, although the responsible business units may  not know specifically how savings will be achieved. Officials said that this  approach encourages innovation in meeting performance goals while  identifying ways to save FTEs and budget dollars.
section_title: In Recent Years, Compliance Staffing Declined
paragraphs: Since 2001, IRS’s budget requests have made increasing compliance staff  one of several key priorities. For example, in its 2001 budget request IRS  asked for funding for the Staffing Tax Administration for Balance and  Equity (STABLE) initiative, which was designed to provide additional  staffing for examination, collections, and the new Tax Exempt and  Government Entities Division. However, TIGTA recently reported data that  showed an over 7 percent decline in compliance staff between 2000 and  2002.
There are several reasons for the decline, including increased workload  and unfunded costs. In September 2002, the Commissioner attributed the  decline in compliance staffing to increases in workload in other essential  operations such as processing returns, issuing refunds, and answering  taxpayer mail. In the most recently completed fiscal year, 2002, IRS faced  unbudgeted cost increases, such as rent and pay increases, in the amount  of about $106 million. As a result, IRS had to delay hiring revenue agents  and officers, tax compliance officers, and tax specialists. As shown in  appendix I, in 2002 figure 2 shows about 69 percent of IRS’s spending was  for labor costs. IRS noted in its budget request that any major negative  changes in the agency’s financial posture, such as unfunded salary  increases, will have a negative effect on staffing levels.
section_title: IRS’s Experience in 2003 Illustrates the Difficulty of Projecting Savings and Investments
paragraphs: IRS’s experience with last year’s budget request illustrates the difficulty of  projecting and realizing savings and investing resources in higher priority  areas. As part of its 2003 budget request, IRS identified internal savings of  almost $197 million and 2,287 FTEs to be accomplished through various  reengineering efforts and workload decreases. IRS planned to reinvest  those savings in higher priority areas—compliance and customer service  program enhancements, including efforts to stabilize audit rates, improve  telephone assistance level of service, and target highest priority collection  cases. However, IRS now estimates that about $75 million, or 38 percent, of  the dollar savings and about 1,280, or 56 percent, of the FTE savings will be  achieved by the specific reengineering efforts and workload decreases as  identified in the 2003 budget request. IRS officials provided several reasons  why some savings for these particular reengineering efforts will not be  realized, including delays in modernization projects and less-than- anticipated workload decreases. For example, IRS received more innocent  spouse cases than anticipated, and the cases received were more complex,  causing the hours spent per case to increase.
While savings associated with a particular effort listed in the 2003 budget  request may not materialize, IRS officials said that business unit managers  have identified other ways to increase productivity and did more work with  fewer staff—therefore achieving productivity increases through efforts not  identified in the 2003 budget request. As an example, officials provided an  analysis showing increased telephone collections cases closed with  significantly fewer staff than in the previous year. While GAO did not verify  these savings, IRS officials were confident that this and other similar  productivity increases were being achieved. Furthermore, IRS budget  officials said the results of productivity increases not listed in the 2003  budget request should be included in any tally of IRS’s savings.
We agreed that productivity increases generate savings. IRS was unable to  quantify the gains from productivity increases in time for this hearing. IRS  officials also said that most of the savings generated by the productivity  increases would be used to handle workload increases in the same area  where savings were generated. They said the savings would not be  available for reallocation to other areas.
As was the case in 2002, cost increases not included in the 2003 budget  request are also limiting IRS’s ability to fund new investments. According to  IRS officials, IRS will need to fund a total of about $388 million out of  existing resources, including about $128 million for pay increases.
section_title: Information Technology Budget Formulation Process Still Needs Improvement
paragraphs: IRS is requesting about $2.1 billion and 7,986 staff years in information  technology (IT) resources for fiscal year 2004. This includes (1) $429  million for the agency’s multiyear capital account that funds contractor  costs for the BSM program and (2) about $1.67 billion and 7,735 staff years  for information systems, of which $1.62 billion is for operations and  maintenance. In preparing its fiscal year 2004 budget request for the  operations and maintenance of information systems, IRS began to  implement an information technology portfolio management process  patterned after the one used for the BSM program. However, until IRS fully  implements planned process improvements, its ability to develop  supportable information systems budget requests will remain limited.
subsections: section_title: Fiscal Year 2004 BSM Request Developed in Accordance with Federal Guidance
paragraphs: Consistent with the Clinger-Cohen Act of 1996, the Government  Performance and Results Act of 1993, OMB guidance on budget  preparation and submission require that, before requesting multiyear  funding for capital asset acquisitions, agencies develop sufficient  justification for these investments. This justification should reasonably  demonstrate how proposed investments support agency missions and  operations, and provide positive business value in terms of expected costs,  benefits, and risks.
Since the BSM appropriation was established in fiscal year 1998, we  recommended that IRS put in place an enterprise architecture  (modernization blueprint) to guide and constrain its business system  investments. Use of such a blueprint is a practice of leading public and  private sector organizations. Simply stated, this architecture provides a  high-level road map for business and technological change from which  agencies can logically and justifiably derive their budget requests and  capital investment plans. In response to our recommendations, IRS  developed an enterprise architecture. In March 2002, IRS approved a new  version of this architecture (version 2.0), which describes IRS’s current and  target business and technology environments. In December 2002, IRS  completed the associated high-level transition strategy that identifies and  conceptually justifies needed investments to guide the agency’s transition  over many years from its current to its target architectural state.
IRS’s $429 million request for the BSM account for fiscal year 2004 is based  on its enterprise architecture as well as its related life cycle methodology  and investment management process. Thus, this request is based on  analyses that meet the statutory and regulatory requirements for requesting  multiyear capital investment funding.
section_title: BSM Program Management Capability Improved, but Risks Remain
paragraphs: Pursuant to statute, funds from the BSM account are not available for  obligation until IRS submits to the congressional appropriations  committees for approval an expenditure plan that meets certain  conditions. In November 2002, IRS submitted an expenditure plan seeking  approval to obligate funds from the BSM account for its planned fiscal year  2003 projects and program-level initiatives. In March 2003, IRS submitted a  revised plan that reduced the initial request by shifting funding for two  BSM projects to the information systems account and reducing the amount  requested for the core infrastructure projects and program-level initiatives.
In briefings to the staff of the relevant appropriations subcommittees and  IRS on the results of our review of IRS’s November 2002 expenditure plan,  we reported that IRS has progressed significantly in improving its  modernization management controls and capabilities, and has taken steps  to better balance the pace of the BSM program with its management  capability. We also reported that, although important progress has been  made, certain management controls and capabilities, related to  configuration management, human capital management, and cost and  schedule estimate validation, have not yet been fully implemented. Our  analysis has shown that weaknesses in these controls and capabilities  contributed to BSM project cost, schedule, and performance shortfalls  during fiscal year 2002. In approving the release of a portion of the fiscal  year 2003 BSM funding, the appropriations subcommittees directed IRS to,  among other things, fully establish and implement all management  processes and controls needed to effectively manage the BSM program.
IRS has acknowledged these weaknesses and has initiatives planned or  under way to address them.
Despite the progress made during the past year, IRS’s BSM program faces  heightened risks because (1) several key projects are entering their later  stages of development and deployment, (2) some of these projects provide  the foundational infrastructure upon which later projects depend, (3) an  increasing number of project milestones are experiencing cost increases  and schedule delays, and (4) IRS plans to start more projects. While IRS is  better prepared to manage risk and meet the challenges ahead, sustained  top management involvement, improved management capabilities, and  consistent oversight, are critical to the successful implementation of the  BSM program.
section_title: Although Progress Made, Information Systems Budget Request Development Process Needs Additional Improvements
paragraphs: Leading private- and public-sector organizations have taken a project- or  system-centric approach to managing not only new investments but also  the operations and maintenance of existing systems. As such, these  organizations  identify operations and maintenance projects and systems for inclusion   assess these projects or systems on the basis of expected costs,  benefits, and risks to the organization;  analyze these projects as a portfolio of competing funding options; and  use this information to develop and support budget requests.
This focus on projects, their outcomes, and risks as the basic elements of  analysis and decision-making is incorporated in the IT investment  management approach that is recommended by the OMB and GAO. By  using these proven investment management approaches for budget  formulation, agencies have a systematic method, on the basis of risk and  return on investment, to justify what are typically very substantial budget  requests for the operations and maintenance of information systems. These  approaches also provide a way to hold IT managers accountable for  operations and maintenance spending and the ongoing efficiency and  efficacy of existing systems.
In our assessment of IRS’s fiscal year 2003 budget request, we reported  that IRS did not develop its information systems operations and  maintenance request in accordance with the investment management  approach used by leading organizations. For example, in developing the  request, IRS had not identified and assessed the relative costs, benefits, and  risks of specific operations and maintenance systems and projects. Instead,  according to IRS officials, they developed the request by beginning with the  fiscal year 2002 expenditures and simply adding amounts to fund cost-of- living and salary increases. IRS officials attributed this gap between IRS’s  practices and those followed by leading organizations to the lack of an  adequate cost accounting system, cultural resistance to change, and a  previous lack of management priority. We recommended that IRS prepare  its fiscal year 2004 information systems budget request in accordance with  the investment management approach used by leading organizations. IRS  agreed and initiated actions to address our recommendation.
IRS has made progress in incorporating investment management practices  into the formulation of its fiscal year 2004 information systems budget  request. For example, IRS created information technology portfolios for its  operations and maintenance systems in accordance with revised OMB  budget guidance. According to IRS officials, these portfolios were used to  assist managers and staff involved with information technology planning  and investment decision-making to (1) assess initiatives in terms of their  cost, risks, and expected returns and (2) determine and maintain the  appropriate mix of investments. They also indicated that they are working  with Treasury and OMB to improve the information technology investment  portfolio development process. IRS’s emphasis on portfolio development  demonstrates an increased effort to ensure its information systems  operations and maintenance requests are supported.
Despite this progress, IRS has not yet completed its planned actions to  implement our recommendation. As of April 2003, IRS has not developed  an activity-based cost accounting system to enable it to account for the full  costs of operations and maintenance projects and determine how  effectively IRS projects are achieving program goals and mission needs.  IRS officials stated that they are developing an activity-based cost model in  conjunction with the Integrated Financial System modernization project,  but this model will not be fully implemented until December 2003.  Furthermore, IRS officials stated that data from this model will not be  available for use until the fiscal year 2006 budget formulation cycle. In  addition, IRS has still not completed its capital planning guidance, and thus  did not use it in preparing its fiscal year 2004 information systems budget  submission. According to IRS officials, the agency has developed a draft  Capital Planning and Investment Control guide that is undergoing internal  review, but it will not be completed and implemented until late October  2003. Until IRS incorporates the cost model and capital planning and  investment control guidance into the preparation of its information  systems budget request, IRS will not be able to ensure that the information  systems operations and maintenance request is adequately supported.
section_title: Interim Results of IRS’s 2003 Filing Season Show Improvement over Previous Years
paragraphs: IRS’s filing season performance through mid-March has improved  compared to recent years, based on data we reviewed in five key filing  season activities—paper and electronic processing, telephone assistance,  IRS’s Web site, and walk-in assistance. For example, telephone access has  improved, and IRS’s Web site has seen increased use. While we cannot  quantify the connection between these results and IRS’s ongoing systems  modernization efforts, the improvement in filing season performance, in  part, represents a payoff from systems modernization.
subsections: section_title: IRS’s Paper and Electronic Processing Operations Have Gone Smoothly This Year
paragraphs: Through March 28, IRS has smoothly processed about 67 million individual  income tax returns. According to IRS data and to officials and tax  preparers we spoke with, IRS has not experienced any significant  processing or computer problems. IRS officials attribute this year’s smooth  processing, in part, to the relatively insignificant tax law changes compared  to last year.
Electronic filing continues to grow, although at a slower rate than  projected. Of the approximate 67 million returns, about 26 million  individual income tax returns were filed on paper and 41 million returns  were filed electronically, as of March 28, as shown in table 1. This  represents an increase in electronic filing of 10.4 percent over the same  time period last year. Whether IRS will achieve its goal of 54 million tax  returns filed electronically in 2003 is uncertain. Last year at this time IRS  was also below its goal, but made up the difference late in the filing season.
Growth in electronic filing is a key part of IRS’s modernization strategy.  Electronic filing allows IRS to control costs and improve customer service,  by reducing labor intensive processing of paper returns. This year, to help  increase electronic filing, IRS entered into an agreement with the Free File  Alliance, a consortium of 17 tax preparation companies, to offer free online  tax preparation and filing services for at least 60 percent of all taxpayers  via the IRS Web site. IRS data shows that as of March 26, about 2.1 million  returns were filed through the consortium, close to the goal of 2.5 million.
While there have been some complaints about pop-up ads, taxpayers  reported in IRS surveys that they were generally pleased with the service.
Because of the growth in electronic filing, the number of paper returns has  declined in recent years. As a result, IRS is closing processing operations at  the Brookhaven Submission Processing Center, one of its eight processing  centers for individual income tax returns filed on paper. This closing  represents a significant consolidation of IRS’s processing operations.  Based on processing data to date, the consolidation has not disrupted the  filing season.
section_title: Telephone Access Improved over Last Year, While Accuracy Generally Remained Stable
paragraphs: Access to IRS’s toll-free telephone lines improved over last year. As table 1  shows, as of March 22, the percentage of taxpayers that attempted to reach  an assistor and actually got through and received service—referred to as  the Customer Service Representative level of service—increased 15  percentage points over the same period last year, for the approximately 10  million calls served. In addition, taxpayers have waited 61 seconds less, on  average, to speak to an assistor so far this filing season as compared to last  year. According to IRS officials, the increase in the level of service is largely  due to lower than expected call demand and more effective routing of calls  to qualified assistors. Part of the reason for the decrease in demand is that  some taxpayers are using the new refund status check feature on IRS’s Web  site rather than calling.
Accuracy was relatively stable this year as compared to last year. As shown  in table 1, taxpayers who called about their accounts received correct  information an estimated 88 percent of the time. IRS officials said that  accounts accuracy rates remained stable, because many simple refund  inquiries were diverted to the new refund feature on IRS’s Web site, leaving  assistors to handle more complex calls. Table 1 also shows taxpayers who  called with tax law questions received correct information an estimated 81  percent of the time, slightly down from last year. According to IRS officials,  because many assistors had difficulty in adapting to a change in the guide  used to query callers.
section_title: Web Site Is Seeing Increased Use and Has New Features, although Concerns about Usability Still Exist
paragraphs: IRS’s Web site use has increased over last year. About 283 million forms and  publications have been downloaded—a 29 percent increase over the same  period last year. In addition, an independent study reported that IRS’s Web  site had ranked in the top 10 out of 40 government web sites and that users  were able to access IRS’s site in less than one second during the January 20  through February 28 test period.
IRS added a new feature to its Web site for use this filing season: the refund  status check, (“Where’s My Refund?”). This feature enables taxpayers to  find out if the IRS received their returns and whether their refunds were  processed. IRS intended this feature to divert some simple telephone calls  from assistors. Data shows that as of March 28, about 10.3 million  taxpayers have used this feature to check the status of their refund.
While some of the problems we identified in previous years appear to have  been remedied, we continue to have concerns about the search function on  IRS’s Web site. Our informal testing of IRS’s Web site showed that it is more  user friendly than last year. We found it to be more accessible, easier to  navigate, and data was more current. However, the search functions still do  not always make the most pertinent information readily available. For  example, when we typed “earned income tax credit” into the forms and  publication search function, Publication 596—the primary publication on  the earned income tax credit—was the 70th item on the list, and we had to  scroll through seven pages to find it. According to IRS officials, an  independent contractor is currently looking at ways to improve the search  functions, and the contractor expects to issue its report in mid-April of this  year.
section_title: Walk-in Assistance Improved and Community Based Coalitions Expanded over Last Year
paragraphs: The quality of assistance at IRS’s walk-in sites has improved this year over  last, and service to taxpayers through community based coalitions has  increased. At congressional direction, the TIGTA has been responsible for  measuring the quality of assistance at IRS’s walk-in sites. According to  TIGTA officials, the accuracy of tax law assistance provided at IRS’s walk- in sites increased as of February this year to about 73 percent—an increase  of 27 percentage points over the same period last year. TIGTA also found  that the rate at which IRS employees referred taxpayers to a publication  instead of answering tax law questions—which had been an issue last  year—declined by about 85 percent.
According to TIGTA officials, the increased accuracy rates resulted from  various steps taken by IRS, including revising to the guidelines used by  walk-in staff, certifying staff proficiency, conducting monthly reviews of  tax law accuracy, and taking immediate action to address review  information relating to any incorrect answers or improper referrals found  during IRS or TIGTA quality reviews.
As table 1 shows, more taxpayers had their returns prepared by  community-based coalitions and other organizations that provide free tax  return-preparation assistance as part of IRS’s Volunteer Income Tax  Assistance and Tax Counseling for the Elderly programs. These programs  use IRS-trained volunteers to help prepare basic tax returns for taxpayers  with special needs—including those with a low to fixed income, non- English speaking people, and the elderly.
section_title: Concluding Observations
paragraphs: As the examples of improved telephone access and the Brookhaven  Processing Center closing show, IRS is beginning to realize payoffs from  the ongoing systems modernization investments and wider management  improvements. Although IRS has not succeeded in reallocating staff to one  of its priority needs, compliance, there will likely be increased potential for  such reallocation as modernization proceeds. This will present Congress, in  its oversight and appropriations roles, with significant opportunities to  weigh in on IRS’s overall strategy for better accomplishing its mission.  Specifically, Congress will have opportunities to help IRS establish  strategic priorities and make decisions about the resources needed to meet  those priorities.
Mr. Chairman, this concludes my prepared statement, and I would be  pleased to respond to any questions.
section_title: How IRS Allocated Expenditures and Staff Resources in Fiscal Year 2002
paragraphs: To provide some context for understanding the 2004 budget request, figures  2 and 3 illustrate how the Internal Revenue Service (IRS) allocated  expenditures and staff resources in fiscal year 2002, the most recently  completed year. Figure 2 shows IRS’s fiscal year 2002 actual expenditures  in several categories, including about 69 percent that was spent on labor.  Figure 3 shows how IRS allocated its labor across functional areas,  including ensuring compliance such as auditing and collecting delinquent  taxes (45 percent), providing taxpayer services such as telephone  assistance (21 percent), and processing tax returns (15 percent). However,  the boundaries between categories may not be as well defined as the  figures indicate. For example, in figure 3, staff categorized as maintaining  information systems could also be considered under support for  processing, taxpayer service or compliance. Therefore, the figures are  meant to provide a summary of how IRS uses its resources and should be  interpreted with caution.