IRS received approximately $197 million to implement 54 Recovery Act provisions. The Joint Committee on Taxation (JCT) estimated that these 54 provisions would cost about $325 billion between fiscal year 2009 and fiscal year 2019. (App. III shows the estimated cost of each provision.) JCT’s estimate can be reconciled with the Congressional Budget Office’s (CBO) estimate of $212 billion in reduced revenue and the administration’s $288 billion in tax relief shown on its Recovery Act Web site, recovery.gov. JCT’s estimate includes the effect on the budget of provisions of the act administered through the tax code, but CBO’s $212 billion estimate, which is based on JCT’s estimate, includes only the effect on revenue collections. The primary difference is that CBO’s estimate does not include some provisions that result in additional federal outlays rather than only reduced tax collections. This occurs under several provisions when taxpayers can receive a refund even if they do not have any tax liability. On recovery.gov, the administration includes both categories to arrive at its estimate of $288 billion in tax relief. The JCT estimate of $325 billion also includes the cost of COBRA and economic recovery payments provisions that IRS administers. IRS had a role in administering 54 Recovery Act provisions. However, IRS is not responsible for implementing all provisions included in the tax section of the Recovery Act, such as grants in lieu of credits and the New Markets Tax Credit. Grants were authorized because the effectiveness of particular credits was thought to be undermined by economic conditions; the grant provisions are administered elsewhere in Treasury. In a recent report, TIGTA’s count of Recovery Act provisions also differed from ours; for example, it included the New Markets Tax Credit, which is being administered by Treasury’s Community Development Financial Institutions Fund. To facilitate management of the provisions, as shown in figure 1, IRS grouped the provisions into six categories, with individual credits as the largest category by far in terms of dollars. A seventh category, withholding on government contractors, appears in the figure because it is being administered by IRS; however, IRS did not consider it to be a category because the Recovery Act only delayed the effective date for the withholding. The bulk of the stimulus to be provided by the tax provisions is expected to be in fiscal year 2010, as shown in figure 2. As previously mentioned, we focused our work on five provisions and performed limited work on a sixth. A brief description of each provision follows. (See app. I for a more thorough description of these provisions, including provision requirements.) Build America Bonds (BAB): BABs are taxable government bonds that can be issued with federal subsidies for a portion of the borrowing costs delivered either through nonrefundable tax credits provided to holders of the bonds (tax credit BAB) or as refundable tax credits paid to state and local governmental issuers of the bonds (direct payment BAB). Direct payment BABs are a new type of bond that provides state and local government issuers with a direct subsidy payment equal to 35 percent of the bond interest they pay. Tax credit BABs provide investors with a nonrefundable tax credit of 35 percent of the net bond interest payments (excluding the credit), which represents a federal subsidy to the state or local governmental issuer equal to approximately 25 percent of the total return to the investor. State and local governments may issue an unlimited number of BABs through December 31, 2010, and all BAB proceeds must be used for capital expenditures. Consolidated Omnibus Budget Reconciliation Act (COBRA): Recently extended, the COBRA provision originally provided a 65 percent health insurance subsidy for up to 9 months for individuals who lost health insurance coverage due to involuntary termination between September 1, 2008, and December 31, 2009. Former employers, or in some cases multiemployer health plans or insurers, pay 65 percent of insurance premium costs and are reimbursed through a tax credit against their payroll tax liability or through a tax refund if the credit exceeds their payroll tax liability. First-Time Homebuyer Credit (FTHBC): The Recovery Act expanded the FTHBC, which was initially established under the Housing and Economic Recovery Act of 2008, to provide taxpayers a refundable tax credit of up to $8,000 for the purchase of a home. Taxpayers are generally not required to repay the credit unless the home ceases to be the taxpayer’s principal residence within 3 years of purchase. Several of the issues with the FTHBC that are discussed in this report include differences between the 2008 and 2009 credits. The 2008 credit differs from the 2009 credit in that it provided taxpayers up to $7,500, which has to be repaid in $500 increments over the course of a 15-year period. We testified on the use of the FTHBC and implementation and compliance challenges in October 2009. Making Work Pay Credit (MWPC): The MWPC is a refundable tax credit that provides up to $400 and $800, respectively, to working individuals and married couples who file joint returns. Taxpayers may receive the credit throughout the year in the form of lower amounts of tax withheld from their paychecks. Taxpayers who do not have taxes withheld throughout the year will not benefit from the credit until they claim it on their annual tax return. Net Operating Loss (NOL) Carryback: The NOL carryback provision allows eligible small businesses—those that had a 3-year gross receipts average of no more than $15 million—to apply for a refund for taxes paid in up to 5 previous years if the business experienced a loss in 2008. Health Coverage Tax Credit (HCTC): The HCTC can be claimed (1) by workers who have lost manufacturing or service jobs due to international trade or have lost public agency jobs and are eligible for a form of Trade Adjustment Assistance or (2) by those who are receiving payments from the Pension Benefit Guaranty Corporation. Among other things, the Recovery Act increased the health insurance premium subsidy rate from 65 percent to 80 percent of the premiums for an eligible taxpayer’s qualified health insurance plan. While IRS has implemented major pieces of legislation in the past, the Recovery Act posed significant implementation challenges because it was a large piece of legislation and many provisions were immediately or retroactively effective and had to be implemented during the tax filing season—IRS’s busiest time of year. IRS officials moved quickly to implement the Recovery Act, aided by their efforts to organize internally and consult externally with lawmakers and industry groups before the act’s passage. IRS put its highest priority on implementing 14 of the 54 IRS provisions in 2009 because they required immediate action. Some of these provisions, such as the FTHBC and NOL carrybacks, were retroactive and could be claimed on a 2008 tax return. IRS started taking action on many of the remaining 40 provisions in 2009 as well. Some provisions affected the 2009 filing season (for tax year 2008), while others mainly will affect the 2010 and 2011 filing seasons. To implement the provisions, IRS quickly issued forms and guidance, communicated with taxpayers and tax return preparers, and made computer programming or processing changes. For example, within days of the act’s passage, IRS issued revised withholding tables for the MWPC and produced new or updated tax forms and instructions for it and COBRA. As shown in table 1, as of January 12, 2010, IRS either completed or initiated steps to issue new forms and instructions and revise many others for 48 of the 54 provisions, or 89 percent of the total. When we first checked on progress, as of August 20, 2009, or about 6 months after the Recovery Act’s enactment, the percentage was also greater than 80 percent. In addition, as of January 12, 2010, IRS communicated with taxpayers and tax return preparers through a variety of avenues, such as news releases, postings on irs.gov, podcasts, and You Tube videos for 47 of the 54, or about 87 percent of the provisions. IRS also made computer programming changes to enable processing for paper and electronically filed returns for 39, or about 72 percent of the provisions. IRS did not plan to engage in guidance and instruction for 6 provisions or education and outreach activities for 7 provisions, or make processing and programming changes for 15 provisions because, according to IRS officials, some did not require activities to inform the public or ready IRS systems. We agree with this decision because, as we saw, some of the tax provisions without implementation activities were extensions or expansions of previously existing tax provisions, modified previously existing tax rules, or gave additional guidance. For example, one provision amended the Work Opportunity Tax Credit (WOTC) to create two new categories of targeted groups, and as a result, IRS updated the instructions to the related tax form to be filed with IRS but did not isolate amounts related to these categories on the form itself or make any substantive processing and programming changes. IRS management had to make tradeoffs, often balancing other factors, such as not making some computer changes to collect data, against the need to quickly process claims and get tax information and assistance out to the public, in order to implement the Recovery Act. For provisions we reviewed in detail, IRS’s initial actions were at times later substantively adjusted. As a first example of a tradeoff, because IRS needed to quickly issue a new set of withholding tables so taxpayers could immediately benefit from the MWPC through reduced federal tax withholding, Treasury decided not to fully account for the effect of the MWPC on taxpayers whose incomes were in the MWPC phaseout range. As a result, taxpayers with incomes in the phaseout range did not receive a precisely calculated tax reduction. In November 2009, IRS issued new withholding tables for 2010 that included two new brackets to better recognize the effect of the MWPC on taxpayers in the phaseout range. The withholding changes for the MWPC may also have unfavorable consequences for some other taxpayers.