The congressional budget justification for IRS presents funding and FTE information at two levels: (1) appropriation account and (2) budget activity. In addition, it provides descriptions of program activities within each budget activity. IRS has four appropriation accounts: Enforcement. This account provides funding for the examination of tax returns, both domestic and international; administrative and judicial settlement of taxpayer appeals of examination findings; technical rulings; monitoring of employee pension plans; determination of qualifications of organizations seeking tax-exempt status; examination of tax returns of exempt organizations; enforcement of statutes relating to detection and investigation of criminal violations of the internal revenue laws; identification of underreporting of tax obligations; securing of unfiled tax returns; and collecting unpaid accounts. Operations Support. This account provides funding for overall planning, direction, and support for the IRS, including shared service support related to facilities services, rent payments, printing, postage, and security. This appropriation funds headquarters policy and management activities such as corporate support for strategic planning; communications and liaison; finance; human resources; equity, diversity and inclusion; research and statistics of income; and necessary expenses for information systems and telecommunication support, including development, security, and maintenance of IRS information systems. Taxpayer Services. This account provides funding for taxpayer service activities and programs. This includes printing forms and publications, processing tax returns and related documents, offering filing and account services, ensuring the availability of taxpayer assistance, and providing taxpayer advocacy services. Business Systems Modernization. This account provides resources for the planning and capital asset acquisition of IT to modernize the IRS business systems. Budget activities divide appropriation accounts into additional functions. For example, the Enforcement appropriation is broken into three budget activities: Investigations, Exam and Collections, and Regulatory. Each budget activity, in turn, has multiple program activities. For example, Exam and Collections has 18 program activities. The congressional justification presents how budget resources could be allocated to appropriation accounts. IRS is restricted from reprogramming funds within appropriation accounts without committee approval if the reprogramming will augment existing programs, projects, or activities (PPA) in excess of $5 million or 10 percent, whichever is less. IRS refers to its PPAs as “budget activities.” IRS generally notifies Congress if it expects to reprogram funds from one budget activity to another. However, IRS is not restricted from shifting resources between program activities, which are activities within a budget activity and not subject to reprogramming restrictions. Further, while IRS cannot transfer resources from one appropriation account to another without specific statutory authority to do so, IRS could shift resources between any of the 18 program activities within the Exam and Collection budget activity without Congressional approval or notification. Within the congressional justification, IRS also details its strategic goals and objectives for the agency. According to the fiscal year 2015 congressional justification for IRS, the IRS strategic plan guides program and budget decisions and supports the Department of the Treasury Fiscal Year 2014 to 2017 Strategic Plan and the Agency Priority Goal of expanding the availability and improving the quality of customer service options. The congressional justification also details information on requested program increases (new program initiatives). The information includes why the funds are needed, how they will be used, and the number of staff by position needed to do the work. Some of the new program initiatives also include projected return on investment (ROI) calculations—the projected additional revenue collected, divided by the projected cost. For IRS, projected ROI is an estimate of how the agency expects a program initiative to perform. IRS defines three types of ROI: Revenue producing. The initiative yields direct, measureable results through enforcement activities. Revenue protecting. The initiative prevents the issuance of fraudulent refunds to persons posing as a taxpayer and resolves issues prior to issuing a refund. Revenue enhancing. The initiative leads to improved revenue collection through improvements in case selection, issue identification, and enforcement case treatment. In recent years, some of the new program initiatives have been predicated on a program integrity cap adjustment. Congress passes these adjustments to allow additional funding above discretionary spending limits for certain activities that are expected to generate benefits that exceed cost. Of the 22 initiatives in the IRS fiscal year 2015 budget request, 17 are predicated on a program integrity cap adjustment. IRS continues to implement four major new laws passed in recent years: PPACA. This law reforms the private insurance market and expands health coverage to the uninsured. IRS is responsible for implementing new provisions including new taxes, tax credits, and information reporting requirements. Merchant card reporting. This law requires payment settlement entities (e.g., banks) to report fiscal year information and the gross amount of reportable payment transactions (i.e., payment card and third party network transactions) to IRS. Cost basis reporting. This law requires investment brokers to report the adjusted cost basis for certain publicly traded securities and whether a gain or loss is short or long-term. Foreign Account Tax Compliance Act (FATCA). This law adds reporting and other requirements relating to income from assets held abroad by: (1) requiring foreign financial and nonfinancial institutions to withhold 30 percent of payments made to such institutions by U.S. individuals, unless such institutions agree to disclose the identity of such individuals and report on their bank transactions, and (2) denying a tax deduction for interest on non-registered bonds issued outside the United States. IRS’s appropriations have ranged from a low of $10.2 billion in fiscal year 2005 to a high of $12.1 billion in fiscal year 2010. The fiscal year 2010 high was in part a result of a program integrity cap adjustment of $890 million. As we have previously reported, IRS’s budget declined approximately $900 million between fiscal years 2010 and 2014. These cuts reduced IRS’s budget to below fiscal year 2009 funding levels. The largest budget reduction ($618 million) occurred in fiscal year 2013 because of sequestration ($594 million) and a 0.2 percent rescission ($24 million). In fiscal year 2014, IRS’s budget remained essentially flat, with an increase of $92 million for the improvement of identification and prevention of refund fraud and identity theft, and international and offshore compliance issues. For fiscal year 2015, the President requested $12.5 billion for IRS, an increase of 10.5 percent ($1.2 billion) over fiscal year 2014 appropriations. See figure 1. Staffing declined by more than 10,000 FTEs between fiscal years 2010 and 2014, which reduced IRS’s total FTEs to below fiscal year 2009 levels. For fiscal year 2015, the President requested an increase of about 7,000 FTEs over fiscal year 2014, which would bring IRS above fiscal year 2012 levels. See figure 2. Amidst these budget reductions, IRS’s performance has declined in Enforcement and Taxpayer Services. IRS officials anticipate continued declines in fiscal year 2015. As shown in figure 3, IRS lowered its return examination and collection coverage targets. For example, the original audit coverage target for individual examinations was 1 percent for fiscal year 2014, but was lowered to 0.8 percent in the fiscal year 2015 congressional justification. IRS’s performance in assisting taxpayers has also suffered, including telephone and correspondence services. Between fiscal years 2009 and 2013, telephone level of service—the percentage of callers seeking live assistance and receiving it—fluctuated between 61 percent and 74 percent. As of April 19, 2014, after the filing season ended, fiscal year 2014 telephone level of service was 67 percent. In addition, the average amount of time a taxpayer had to wait to talk to a telephone assistor increased since fiscal year 2009—from 8.8 minutes to 17.0 minutes, as of April 19, 2014. Moreover, from fiscal years 2009 through 2013, overage correspondence—paper correspondence to which IRS has not responded within 45 days of receipt—increased from 25 percent to 47 percent. However, according to IRS, the 2014 filing season was relatively smooth, which IRS attributes to reduced call volume and fewer tax law changes. IRS attributes performance declines to sequestration and furloughs. For example, the number of individual, high-income, and business return audits fell from fiscal year 2012 to 2013 because fewer staff were available to conduct audits. Similarly, reports by the IRS Oversight Board and the National Taxpayer Advocate (NTA) attribute performance declines in part to reduced funding. As staffing fell, IRS’s workload increased in some areas as a result of statutory mandates and priority programs. For fiscal year 2014, IRS allocated 9 percent of its FTEs to these mandates and programs, including those to implement four new laws—PPACA, merchant card reporting, cost basis reporting, and FATCA. In addition, because instances of identity theft are more frequent, IRS has significantly increased resources devoted to refund fraud, which includes identity theft. Since IRS began tracking refund fraud in fiscal year 2011, it has more than quadrupled the numbers of FTEs allocated to refund fraud, from 1,018 in fiscal year 2011 to 4,146 FTEs in fiscal year 2014 (about 5 percent of its total workforce). Table 1 shows the shift in FTEs to legislative mandates and priority programs. To reduce spending to address sequestration and other budget cuts, IRS has taken steps that include the following key efforts: Staff attrition and furloughs. IRS absorbed the majority of its budget cuts through staff attrition and furloughs. Of the $567 million in savings realized in fiscal year 2013, $311 million resulted from attrition, hiring freezes, and furloughs. IRS implemented an exception- only hiring freeze in December 2010. In fiscal year 2013 alone, FTEs decreased by more than 2.7 percent—2,978—from fiscal year 2012 as a result of attrition, according to IRS. Of these savings, IRS generated $88.5 million from 3 furlough days. Reduced travel and training. IRS substantially reduced employee training and related travel.