Appropriated Accounts Internal Revenue Service

Internal Revenue Service

Program Summary by Appropriations Account
(Dollars in thousands)
FY 2006 FY 2007 FY 2008
Appropriation President’s President’s $ Change % Change
Enacted CR-rate
Budget Budget over CR-rate 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%
Subtotal, Internal Revenue Service $10,573,706 $10,591,837 $10,438,364 $11,095,499 $657,135 6.30%
Offsetting Collections - Reimbursable 137,110 125,723 125,723 133,498 7,775 6.18%
Mandatory Appropriation - User Fees 100,000 242,000 242,000 180,000 (62,000) -25.62%
Total Program Operating Level $10,810,816 $10,959,560 $10,806,087 $11,408,997 $602,910 5.58%
FY 2006 Enacted is presented in the new budget structure for comparability across fiscal years. This differs from the FY 2008 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 HITCA). In addition, FY 2007 CR-rate includes proposed interappropriation transfers.

Explanation of Request IRS’ enforcement programs are aimed at deterring

taxpayers inclined to evade their responsibilities
The FY 2008 President’s Budget for the Internal while vigorously pursuing those who violate tax laws.
Revenue Service (IRS) includes funding to implement Delivering these programs demand a secure and
Treasury’s tax strategy (see http://www.treasury.gov/ modernized infrastructure capable to fairly, effectively,
press/releases/ hp111.htm) to increase tax compliance and efficiently collect taxes while minimizing taxpayer
while minimizing additional taxpayer burden. Also, burden. The IRS FY 2008 President’s Budget request
the IRS will continue its efforts to increase and supports its five-year strategic plan and Treasury’s
improve the delivery of services offered to taxpayers compliance improvement strategy. These documents
by expanding its research and implementing new underscore the Treasury Department commitment to
technology (e.g., Spanish “Where’s My Refund?” and provide quality service to taxpayers while enforcing
an estimated calling wait time feature). The IRS will America’s tax laws in a balanced manner. The IRS’
invest in information technology to give its employees strategic plan goals are:
the tools they need to administer and improve both
taxpayer service and enforcement programs. • Improve Taxpayer Service. Help people understand
their tax obligations, making it easier for them to
Total resources to support the IRS’ activities for participate in the tax system;
FY 2008 are $11,408,997,000. This includes
$11,095,499,000 from direct appropriation, • Enhance Enforcement of the Tax Law. Ensure
$133,498,000 from reimbursable programs, and taxpayers meet their tax obligations, so that when
$180,000,000 from user fees. The direct appropriation Americans pay their taxes, they can be confident
is a $657,135,000 increase, or 6.3 percent, over their neighbors and competitors are also doing the
the FY 2007 Continuing Resolution (CR) rate of same; and
$10,438,364,000.
• Modernize the IRS through its People, Processes
The IRS administers America’s tax laws and collects the and Technology. Strategically manage resources,
revenue that funds most government operations and associated business processes and technology
public services. The IRS’ taxpayer service programs systems to effectively and efficiently meet service
provide assistance to millions of taxpayers to help and enforcement strategic goals.
them understand and meet their tax obligations. The

Department of the Treasury – Budget in Brief FY 2008
 In FY 2007, Congress implemented a new Tax Enforcement Program: The IRS continues its
appropriations structure for the IRS which emphasis on tax enforcement, increasing collections
realigned resources from its three major operating of delinquent tax debt from $34 billion in 2002
appropriations into three new accounts – Taxpayer to $49 billion in 2006, an increase of 44 percent.
Service (TS), Enforcement (ENF), and Operations Since 2003, federal government receipts have
Support (OS). In addition, funding for the IRS’ also increased by over $600 billion, with revenue
staffing associated with direct management of its growth the greatest in the areas of corporate taxes
Business Systems Modernization (BSM) program and high-income individual taxes. In FY 2008, the
was realigned from the previous Information Systems President’s Budget increases funding for enforcement
appropriation to the BSM appropriation to reflect full by $440,264,000, which includes $291,332,000 for
program funding. new enforcement initiatives and $148,932,000 in cost
increases. As in 2006 and 2007, the Administration
The FY 2008 President’s Budget request for the IRS proposes to include enforcement increases as
increases funding as part of a strategy to improve a Budget Enforcement Act program integrity
compliance by: cap adjustment (see chapter 15, Budget Reform
• Implementing legislative and regulatory Proposals in the Analytical Perspectives volume of
changes; the 2008 Budget). The IRS’ enforcement resources
are funded in the Enforcement and Operations
• Increasing front-line enforcement resources; Support appropriations.

• Increasing voluntary compliance through Increased resources for the IRS’ exam and collection
improved taxpayer service options and enhanced programs yield direct measurable results. Once the
research; and new staff proposed in this request are trained and
gain more experience, the enforcement revenue
• Investing in technology to reverse infrastructure generated each year will be $699 million. However,
deterioration, accelerate modernization, and this estimate excludes the likely larger revenue impact
improve the productivity of existing resources. from the deterrence value of these and other IRS
enforcement programs (e.g., criminal investigations).
IRS Funding History
It also excludes the impact of taxpayer services on
[Dollars in Thousands]
voluntary compliance.
$0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,0000,000 $12,000,000

The IRS cannot currently measure either the impact

FY 2008
of deterrence or service, but they are positive.
FY 2007*
The complexity of the nation’s current tax system
is a significant reason for the tax gap, and even
FY 2006 sophisticated taxpayers make honest mistakes on
their tax returns. Accordingly, helping taxpayers
Taxpayer Services
Enforcement
understand their obligations under the tax law is a
Operations Support critical part of improving voluntary compliance. To
Business Systems Modernization
this end, the IRS remains committed to a balanced
Health Insurance Tax Credit Administration
program assisting taxpayers in both understanding
* President’s Budget
the tax law and remitting the proper amount
of tax.


Department of the Treasury – Budget in Brief FY 2008
 Appropriated Accounts Internal Revenue Service
Taxpayer Service and Enforcement Programs
(Dollars in thousands)
FY 2006 FY 2007 FY 2008
Programs % Change over
Enacted CR-rate President’s Budget CR-rate
Taxpayer Service $3,498,473 $3,438,758 $3,569,960 3.8%
Direct Appropriation $2,142,042 $2,046,908 $2,103,089
Operations Support $1,356,431 $1,391,850 $1,466,871
Enforcement $6,813,215 $6,787,950 $7,228,214 6.5%
Direct Appropriation $4,708,441 $4,660,572 $4,925,498
Operations Support $2,104,774 $2,127,378 $2,302,716
Total $10,311,688 $10,226,708 $10,798,174 5.6%

Taxpayer Service Program: Helping the public The FY 2008 President’s Budget request supports
understand its tax reporting and payment obligations improving compliance by funding activities that
is a cornerstone of taxpayer compliance. In FY 2008, promote better tax administration and compliance
the President’s Budget increases funding for taxpayer with the tax laws and focus on the following program
service by $131,202,000. This includes $56,055,000 priorities and objectives:
for new service initiatives and $75,147,000 in cost
increases. The IRS’ taxpayer service resources are • Modernize information systems and business
funded in the Taxpayer Service and Operations processes to maximize resources and improve
Support appropriations. service and enforcement;

Purpose of Program • Enhance research to better allocate resources to

IRS programs;
The IRS and its employees represent the face of the
Federal Government to more American citizens • Discourage and deter non-compliance with
than any other government agency. The IRS collects emphasis on corrosive activity by corporations,
95 percent of the revenues that fund the Federal high-income taxpayers and abusive domestic and
Government. The IRS FY 2008 President’s Budget off-shore tax entities;
request will help strengthen the government’s ability • D e t e r a b u s e w i t h i n t h e t a x - e x e m p t
to collect more of taxes that are legally owed. community; and
The great majority of Americans pay the tax they owe • Simplify the tax process and improve service
on time, but there is still significant non-compliance options for the taxpaying public.
due to non-filing, underreporting, and non-payment.
The IRS’ latest estimate shows that the net tax gap for
Tax Year 2001 was approximately $290 billion.


Department of the Treasury – Budget in Brief FY 2008
 IRS FY 2008 Budget Highlights
(Dollars in thousands)
Health
Business Insurance
Taxpayer Enforce- Operations Systems
Appropriation Tax Credit Total
Services ment Support Moderniza- Administra-
tion tion
FY 2006 Enacted $2,142,042 $4,708,441 $3,461,205 $242,010 $20,008 $10,573,706
FY 2007 President’s Budget $2,079,151 $4,797,126 $3,488,404 $212,310 $14,846 $10,591,837
CR-rate Adjustment (20,000) (88,721) (29,252) (15,500) (153,473)
FY 2007 CR-Rate $2,059,151 $4,708,405 $3,459,152 $196,810 $14,846 $10,438,364
Interappropriation Transfer Corrections to Budget Restructure (12,243) (47,833) 60,076 0
FY 2007 Operating Plan at CR-rate $2,046,908 $4,660,572 $3,519,228 $196,810 $14,846 $10,438,364
Changes to Base
Technical Adjustments to FY 2007 Base due to CR $0 $0 $5,687 $21,886 $0 $27,573
Base Adjustment 0 0 5,687 21,886 0 27,573
Maintaining Current Levels (MCLs) $71,500 $162,373 $104,500 $1,245 $389 $340,007
Pay Annualization 10,190 23,083 6,970 226 15 40,484
Pay Inflation Adjustment 58,424 131,573 41,532 1,019 82 232,630
Non-Pay Inflation Adjustment 2,886 7,717 55,998 292 66,893
Efficiency Savings (23,407) (60,166) (36,408) (119,981)
Subtotal FY 2008 Changes to Base $48,093 $102,207 $73,779 $23,131 $389 $247,599
FY 2008 Base $2,095,001 $4,762,779 $3,593,007 $219,941 $15,235 $10,685,963
Program Changes $8,088 $162,719 $176,580 $62,149 $0 $409,536
Program Decreases/Savings: ($5,968) $0 ($511) $0 $0 ($6,479)
Increased e-File Savings (5,968) (511) (6,479)
Program Reinvestments: $5,968 $0 $511 $0 $0 $6,479
Increase Efficiency through Submission 5,968 511 6,479
Processing Site Consolidations
Program Increases: $8,088 $162,719 $176,580 $62,149 $0 $409,536
Infrastructure Initiatives $0 $0 $81,000 $62,149 $0 $143,149
Upgrade Critical IT Infrastructure 60,000 60,000
Enhance Computer Security Incident Response Center 21,000 21,000
(CSIRC) and Network Infrastructure Security
Fund Business Systems Modernization 62,149 62,149
Enforcement Initiatives $4,235 $162,719 $79,433 $0 $0 $246,387
Improve Compliance Estimates, Measures, 29,054 11,968 41,022
and Detection of Non-Compliance
Improve Compliance Among Small Business 2,437 55,480 15,248 73,165
and Self-Employed Taxpayers
Implement Tax Gap Legislative Proposals 23,045 23,045
to Improve Compliance
Increase Compliance for Large 1,055 19,916 5,229 26,200
Multinational Businesses
Expand Document Matching in Existing Sites 18,536 9,422 27,958
Establish New Document Matching - Kansas City 248 15,669 7,536 23,453
Increase Individual Filing Compliance 495 3,806 2,243 6,544
Increase Tax-Exempt Entity Compliance 11,794 3,206 15,000
Increase Criminal Tax Investigations 8,464 1,536 10,000
Taxpayer Service Initiatives $3,853 $0 $16,147 $0 $0 $20,000
Research Effect of Service on Taxpayer Compliance 5,000 5,000
Expand Volunteer Income Tax Assistance 3,853 1,147 5,000
Implement Taxpayer Assistance Blueprint 10,000 10,000
Subtotal FY 2008 Program Changes $8,088 $162,719 $176,580 $62,149 $0 $409,536
Total FY 2008 President’s Budget Request $2,103,089 $4,925,498 $3,769,587 $282,090 $15,235 $11,095,499


Department of the Treasury – Budget in Brief FY 2008
 Appropriated Accounts Internal Revenue Service
FY 2008 Budget Adjustments travel, supplies, equipment, and rent adjustments
($66,893,000).
The IRS’ total funding increase for FY 2008
is $657,135,000, which includes $27,573,000 Efficiency Savings –$119,981,000/–1,184 FTE The
for a technical adjustment to the FY 2007 base; IRS continues to improve the efficiency of its taxpayer
$340,007,000 for maintaining current levels; service and enforcement programs. Enhancement of
$119,981,000 from efficiency savings; and a net technology; improved workload selection models;
program increase of $409,536,000 to enhance the on-going productivity and efficiency improvements;
IRS’ infrastructure, modernization, enforcement, and and streamlining, centralizing, and consolidating
taxpayer service programs that focus on improving of work processes and programs will lead to
compliance, and implement tax compliance operational efficiencies resulting in significant savings
improvement legislation. By 2010, these investments in FY 2008.
are projected to increase annual enforcement revenue
by $699 million dollars a year. In addition, the tax Program Decreases/Savings
compliance improvement legislative proposals will Increased e-File Savings –$6,479,000/0 FTE This
generate $29 billion over the next ten years. program decrease is a result of savings from increased
electronic filing (e-File) and a projected decrease of
The IRS’ program initiatives focus on the most 4.2 million paper returns filed (3.7 million individual
significant needs for FY 2008: and 0.5 million business) in FY 2008. This budget
request proposes to reinvest these savings toward
• $143,149,000 to improve the IRS’ information related cost associated with the ramp down of the
technology (IT) infrastructure, including Philadelphia Processing Center.
$62,149,000 for the BSM program and $81,000,000
for security and infrastructure enhancements; Program Reinvestments
Increase Efficiency through Submission Processing Site
• $246,387,000 to expand enforcement activities Consolidations +6,479,000/ 0 FTE Increased e-
targeted at improving compliance; and File savings will be reinvested to fund $5,968,000
• $20,000,000 to enhance taxpayer service through in severance pay and $511,000 for support costs
expanded volunteer tax assistance, increased associated with the ramp down of the Philadelphia
funding for research to determine the most effective Processing Center. However, the IRS will maintain
means to help taxpayers, and implementing new a large staff of service and enforcement personnel in
technology to improve taxpayer service. Philadelphia. Increased use of e-File continues to
have a significant impact on Submission Processing
FY 2007 Continuing Resolution (CR) Rate Centers as individual paper return volumes decline.
The FY 2007 CR-rate for the IRS is $10,438,364,000, As a result, the IRS is consolidating the processing
supporting an estimated 91,718 FTE. This amount of individual paper returns at fewer submission
reflects a reduction of $153,473,000 and 1,318 FTE processing sites.
from the FY 2007 President’s Budget request.
Program Increases
Adjustments Upgrade Critical IT Infrastructure +$60,000,000/0 FTE
Technical Adjustments to the FY 2007 Base Attributed to This infrastructure initiative will provide funding to
the CR +$27,573,000/0 FTE This adjustment restores upgrade the backlog of the IRS’ equipment that has
$21,886,000 for BSM projects and management costs exceeded its life cycle. Failure to replace the IRS’
and $5,687,000 for critical IT and other supporting IT infrastructure will lead to increased maintenance
infrastructure. costs and increase the risk of disrupting business
operations. Planned expenditures in FY 2008
Maintaining Current Levels +$340,007,000/0 FTE include procuring and replacing desktop computers;
Funds are requested for annualizing the cost of automated call distributor hardware; mission critical
the January 2007 pay increase ($40,484,000), the servers; and Wide Area Network/Local Area Network
proposed January 2008 pay raise ($232,630,000), routers and switches.
and non-pay inflation for items such as contracts,

Department of the Treasury – Budget in Brief FY 2008
 Enhance Computer Security Incident Response for filing electronic tax returns. Standardizing
Center (CSIRC) and Network Infrastructure Security the formats/ structures for all filings will allow
+$21,000,000/0 FTE This infrastructure initiative transmitters to submit multiple return types in the
will provide $13,100,000 to fund enhancements same transmission, something that restrains e-file
to the CSIRC necessary to keep pace with the growth currently. In FY 2008, the IRS will start
ever-changing security threat environment through development and implementation of the 1040 on the
enhanced detection and analysis capability, improved MeF platform, which is expected to take two years.
forensics, and the capacity to identify and respond
to potential intrusions before they occur. The CSP will provide funding for new portals, which are
remaining $7,900,000 will fund enhancements to technology platforms that meet many IRS business
the IRS’ network infrastructure security, providing needs through web-based front-ends and provide
the capability to perform continuous monitoring of secure access to data, applications, and services.
the security of operational systems, using security The portals are mission-critical components of the
tools, tactics, techniques and procedures to perform enterprise infrastructure required to support key
network security compliance monitoring of all IT business processes and compliance initiatives.
assets on the network. The benefits accruing from the delivery and
Fund Business Systems Moder nization implementation of BSM projects not only provide
+$62,149,000/0 FTE This initiative will provide value to taxpayers, the business community, and
funding to continue the development and government, but also contribute to operational
deployment of the IRS’ modernization program improvements and efficiencies within the IRS.
in line with the recommendations identified in the Improve Compliance Estimates, Measures, and Detection
IRS’ Modernization, Vision, and Strategy. This of Non-Compliance +$41,022,000/ +258 FTE This
increase will allow the IRS to continue progress on enforcement initiative will fund research studies
modernized projects, such as the Customer Account of compliance data for new segments of taxpayers
Data Engine (CADE), Account Management Services needed to update existing estimates of reporting
(AMS), Modernized e-File (MeF), and Common compliance. Unlike the past, the IRS will conduct
Services Projects (CSP). an annual study of compliance among 1040 filers
CADE is the IRS’ lynchpin modernization project based on a smaller sample size than the 2001 National
that will replace the antiquated master file system, Research Program study.  This will provide some
which is based on 1960s architecture. The IRS is fresh compliance data each year, and by combining
developing CADE in stages and expects to retire samples over several years will provide a regular
the Individual Master File in 2012. When fully update to the larger sample size needed to keep the
operational, the CADE database will house tax IRS’ targeting systems and compliance estimates
information for more than 200 million individual up to date. The data captured during the studies
and business taxpayers. will enable the IRS to develop strategies to combat
specific areas of non-compliance, improve voluntary
AMS will provide a Common User Interface for compliance, and allocate resources more effectively.
access and update of taxpayer accounts managed by This initiative benefits taxpayers by significantly
CADE and Individual Master File, Corporate Files improving workload selection formulas that reduce
on Line, and the Integrated Data Retrieval System. the burden of unnecessary taxpayer contacts. This
AMS will provide immediate access to integrated initiative will produce almost $9 million in additional
account data, which improves the ability to resolve annual enforcement revenue, once the new hires reach
account inquiries with minimal taxpayer interaction full potential in FY 2010.
and facilitates the taxpayer’s ability to self assist or
self correct. Improve Compliance Among Small Business and Self-
Employed Taxpayers +$73,165,000/ +485 FTE This
MeF is the future of electronic filing. It provides a enforcement initiative will address and improve
single Extensible Markup Language-based standard compliance among small business and self-employed


Department of the Treasury – Budget in Brief FY 2008
 Appropriated Accounts Internal Revenue Service
taxpayers in the elements of reporting, filing, and additional resources will result in an increase in
payment compliance by increasing audits of high- AUR closures from 2.05 million in FY 2007 to 2.64
risk tax returns, collecting unpaid taxes from filed million in FY 2010 and $208 million of additional
and unfiled tax returns, and investigating and, where enforcement revenue per year, once the new hires
appropriate, prosecuting persons who have evaded reach full potential in FY 2010.
taxes. This request will produce $144 million in
additional annual enforcement revenue, once new Establish New Document Matching – Kansas City
hires reach full potential in FY 2010, +$23,453,000/+208 FTE This enforcement initiative
will fund a new AUR site within the existing IRS
Implement Legislative Proposals to Improve Compliance space in Kansas City to address the misreporting of
+$23,045,000/0 FTE While the IRS continues to income by individual taxpayers. The establishment
address compliance problems by improving customer of this new AUR site will result in over $183 million
service and using traditional methods of enforcement, in additional enforcement revenue per year, once the
the FY 2008 President’s Budget includes several new hires reach full potential in FY 2010.
legislative proposals that would provide the IRS with
additional enforcement tools to improve compliance. Increase Individual Filing Compliance
It is estimated that these proposals could generate +$6,544,000/+61 FTE This enforcement initiative
approximately $29 billion in revenue over the next will help address voluntary compliance. The
ten years. These proposals would expand information Automated Substitute for Return Refund Hold
reporting, improve compliance by businesses, Program minimizes revenue loss by holding the
strengthen tax administration, and expand penalties current-year refunds of taxpayers who are delinquent
(see Receipts in the Analytical Perspectives volume in filing individual income tax returns and are
of the 2008 President’s Budget). This enforcement expected to owe additional taxes. This initiative
initiative includes funding for purchasing software will result in securing more than 90,000 delinquent
and making modifications to the IRS’ IT systems returns in FY 2008 and produce $82 million of
necessary to implement these legislative proposals. additional enforcement revenue per year, once the
new hires reach full potential in FY 2010.
Increase Compliance for Large Multinational Businesses
+$26,200,000/+158 FTE This enforcement initiative I n c r e a s e Ta x - E x e m p t E n t i t y C o m p l i a n c e
will increase examination coverage for large, complex +$15,000,000/+109 FTE This enforcement initiative
business returns; foreign residents; and smaller will deter abuse within tax-exempt and governmental
corporations with significant international activity. entities (TEGE) and misuse of such entities by
The initiative addresses risks arising from the rapid third parties for tax avoidance or other unintended
increase in globalization, and the related increase purposes. The funding will aid in increasing the
in foreign business activity and multi-national number of TEGE compliance contacts by 1,700
transactions where the potential for non-compliance (6 percent) and employee plan/exempt organization
is significant in the reporting of transactions that occur determinations closures by over 9,000 (8 percent)
across differing tax jurisdictions. With this funding, by FY 2010.
coverage for large corporate and flow-through returns I n c r e a s e C r i m i n a l Ta x I n v e s t i g a t i o n s
will increase from 7.9 to 8.2 percent in FY 2008, +$10,000,000/+37 FTE This enforcement
and produce over $74 million in additional annual initiative will help the IRS aggressively attack
enforcement revenue, once the new hires reach full abusive tax schemes, corporate fraud, non-filers,
potential in FY 2010. employment tax fraud, and other tax and financial
Expand Document Matching in Existing Sites crimes identified through Bank Secrecy Act related
+$27,958,000/+214 FTE This enforcement examinations and case development efforts, which
initiative will increase coverage within the Automated includes an emphasis on the fraud referral program.
Underreporter (AUR) program by minimizing The IRS’ robust pursuit of tax violators and the
revenue loss through increased document matching resulting publicity, foster deterrence and enhance
of individual taxpayer account information. The voluntary compliance.


Department of the Treasury – Budget in Brief FY 2008
 Research Effect of Service on Taxpayer Compliance Continued technological advancements offer
+$5,000,000/+8 FTE This taxpayer service initiative significant opportunities such as the initiative for
will provide additional resources to enhance the IRS to improve the efficiency and effectiveness
understanding of the role of taxpayer service on of call center services. Website enhancements are
compliance by undertaking new research on the needs designed to maximize the value of IRS.gov, making
of taxpayers. The research will focus on four areas: the website taxpayers’ first choice for obtaining the
information and services required to comply with
• Meeting taxpayer needs by providing the right their tax obligations.
channel of communication;
Explanation of Budget Activities
• Better understanding of taxpayer burden;
Taxpayer Services (TS)
• Understanding taxpayer needs through the errors The FY 2008 President’s Budget request is
they make; and $2,103,089,000 in direct appropriation, $27,414,000
• Researching the impact of service on overall levels from reimbursable programs, and $108,000,000
of voluntary compliance. from user fees, for a total operating level of
$2,238,503,000. The direct appropriation level
E x p a n d Vo l u n t e e r In c o m e Ta x A s s i s t a n c e is an increase of 2.7 percent from the FY 2007
+$5,000,000/+46 FTE This taxpayer service CR-rate. This appropriation funds the following
initiative will help expand the IRS’ volunteer return budget activities.
preparation, outreach and education, and asset
building services to low-income, elderly, Limited Pre-Filing Taxpayer Assistance and Education
English Proficient, and disabled taxpayers. ($578,078,000 in direct appropriation, $1,059,000
from reimbursable programs, and $76,000,000 from user
Implement Taxpayer Assistance Blueprint (TAB) fees) This budget activity provides funds for services to
+$10,000,000/0 FTE The IRS conducted a assist with tax return filing, including interpretation
comprehensive review of its current portfolio of of the tax laws, media, and publications. In addition,
services to individual taxpayers to determine which funding for these programs continues to emphasize
services should be provided and improved. Based on taxpayer education, outreach, increased volunteer
the findings of the TAB study, the funding for this support time and locations, and enhancing pre-filing
initiative will implement the following telephone taxpayer support through electronic media.
service and Web site interaction enhancements:
Filing and Account Services ($1,525,011,000 in
• Contact Analytics – a tool for evaluating contact direct appropriation, $26,355,000 from reimbursable
center recordings for the purpose of identifying programs, and $32,000,000 from user fees) This
improvements. budget activity funds programs that provide filing
and account services to taxpayers, process paper and
• Estimated Wait Time – this enhancement will electronically submitted tax returns, issue refunds,
inform taxpayers about their expected wait time and maintain taxpayer accounts. The IRS continues
in queue. to make progress in decreasing paper returns and
• Expanded Portfolio of Tax Law Decision Support Tools increasing the use of electronic filing and payment
– this will enable users to conduct key word and methods. The IRS is also increasing both the capacity
natural language queries to get answers to tax law and effectiveness of its telephone and in-person
questions through the Frequently Asked Questions taxpayer support.
database accessed on IRS.gov. Enforcement (ENF)
• Spanish “Where’s My Refund?” – this feature adds The FY 2008 President’s Budget request is
the refund status to the Spanish web page on IRS. $4,925,498,000 in direct appropriation and
gov, enabling the Spanish-speaking community to $49,353,000 from reimbursable programs, for a
receive the same level of customer service on the total operating level of $4,974,851,000. The direct
web as available to the English web page. appropriation level is an increase of 5.7 percent from

Department of the Treasury – Budget in Brief FY 2008
 Appropriated Accounts Internal Revenue Service
the FY 2007 CR-rate. This appropriation funds the Infrastructure ($908,095,000 in direct appropriation)
following budget activities. This budget activity provides resources for
administrative services related to space and housing,
Investigations ($602,872,000 in direct appropriation rent and space alterations, building services,
and $37,716,000 from reimbursable programs) This maintenance, guard services, and non-automated
budget activity funds the criminal investigations data processing equipment.
programs that explore potential criminal violations
of the internal revenue tax laws, enforce criminal Shared Services and Support ($1,223,351,000 in
statutes relating to these violations, and recommend direct appropriation, $50,990,000 from reimbursable
prosecution as warranted. These programs identify programs, and $10,000,000 from user fees) This
and document the movement of both legal and budget activity funds policy management and
illegal sources of income to identify and document IRS-wide support for research, strategic planning,
cases of suspected intent to defraud. It also communications and liaison, finance, human
includes investigation and prosecution of tax resources, and equal employment opportunity and
and money laundering violations associated with diversity services and programs. It also funds printing
narcotics organizations. and postage, business systems planning, security,
corporate training, legal services, procurement, and
Exam and Collections ($4,165,233,000 in direct specific employee benefits programs.
appropriation and $11,637,000 from reimbursable
programs) This budget activity funds programs Information Services ($1,638,141,000 in direct
that enforce the tax laws and compliance through appropriation, $5,741,000 from reimbursable
examination and collection programs that ensure programs, and $62,000,000 from user fees) This budget
proper payment and tax reporting. The budget activity provides funding for staffing, equipment,
activity also supports appeals and litigation activities and related costs to manage, maintain, and operate
associated with exam and collection. the information systems critical to the support of tax
administration programs. The IRS’ business programs
Regulatory ($157,393,000 in direct appropriation) rely on these systems to process tax and information
This budget activity provides resources for the returns, account for tax revenues collected, send bills
development and print of published guidance for taxes owed, issue refunds, assist in the selection of
materials; interpretation of and guidance on tax laws; tax returns for audit, and provide telecommunications
enforcement of regulatory rules, laws, and approved services for all business activities including the public’s
business practices; and supporting taxpayers in the toll-free access to tax information.
areas of pre-filing agreements, determination letters,
and advance pricing agreements. The Office of Business Systems Modernization (BSM)
Professional Responsibility is also funded within this The FY 2008 President’s Budget request is
budget activity and is responsible for identifying, $282,090,000 in direct appropriation. This is
communicating, and enforcing the Treasury Circular an increase of 43.3 percent from the FY 2007
230 standards of competence, integrity, and conduct CR-rate. This appropriation funds the following
of professionals representing taxpayers before budget activity.
the IRS.
BSM ($282,090,000 in direct appropriation) This
Operations Support (OS) budget activity provides resources for the planning and
The FY 2008 President’s Budget request is capital asset acquisition of information technology to
$3,769,587,000 in direct appropriation, $56,731,000 modernize the IRS’ business systems. The program
from reimbursable programs, and $72,000,000 combines best practices and expertise in business
from user fees, for a total operating level of solutions and internal management from the IRS,
$3,898,318,000. The direct appropriation level business, and technology to develop a world-class
is an increase of 7.1 percent from the FY 2007 tax administration system that fulfills the revenue
CR-rate. This appropriation funds the following collection requirements of the United States as well
budget activities. as taxpayers’ needs and expectations.


Department of the Treasury – Budget in Brief FY 2008
 Health Insurance Tax Credit Administration 1) require electronic filing by certain large
(HITCA) businesses;
The FY 2008 President’s Budget request is $15,235,000
in direct appropriation. This is an increase of 2) implement standards clarifying when employee
2.6 percent from the FY 2007 CR-rate. This leasing companies can be held liable for their
appropriation funds the following budget activity. clients’ Federal employment taxes; and

HITCA ($15,235,000 in direct appropriation) This 3) amend collection due process procedures
budget activity provides resources to administer a applicable to employment tax liabilities.
refundable tax credit for health insurance to qualified • Strengthen tax administration – The IRS has
individuals, which was enacted as part of the Trade taken a number of steps under existing law
Adjustment Assistance Reform Act of 2002. to improve compliance. Specific proposals to
Legislative Proposals enhance tax administration would:

The FY 2008 President’s Budget includes a number 1) expand IRS access to information in the
of legislative proposals intended to improve tax National Directory of New Hires database;
compliance with minimum taxpayer burden. When 2) permit the IRS to disclose to prison officials
implemented, these proposals will generate $29 return information about tax violations; and
billion over ten years. The Administration proposes to
expand information reporting, improve compliance 3) make repeated failure to file a tax return a
by businesses, strengthen tax administration, and felony.
expand penalties.
• Expand penalties – Penalties play an important
• Expand information reporting – Compliance with role in discouraging intentional non-compliance.
the tax laws is highest when payments are subject to Specific proposals to expand penalties would:
information reporting to the IRS. Specific proposals
to expand information reporting would: 1) expand preparer penalties;

1) require information reporting on payments to 2) impose a penalty on failure to comply with

corporations; electronic filing requirements; and

2) require basis reporting on security sales; 3) create an erroneous refund claim penalty.

3) expand broker information reporting; Improve Tax Administration and Other

Miscellaneous Proposals
4) require information reporting on merchant The Administration has four proposals relating to IRS
payment card reimbursements; administrative reforms.

5) require a certified taxpayer identification The first proposal modifies employee infractions
number (TIN) from non-employee service subject to mandatory termination and permits a
providers; broader range of available penalties. It strengthens
taxpayer privacy while reducing employee
6) require increased information reporting for anxiety resulting from unduly harsh discipline or
certain government payments for property and unfounded allegations.
services; and
The second proposal allows the IRS to terminate
7) increase information return penalties. installment agreements when taxpayers fail to
• Improve compliance by businesses – Improving make timely tax deposits and file tax returns on
compliance by businesses of all sizes is important. current liabilities.
Specific proposals to improve compliance by The third proposal eliminates the requirement
businesses would: that the IRS Chief Counsel provide an opinion
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Department of the Treasury – Budget in Brief FY 2008
 Appropriated Accounts Internal Revenue Service
for any accepted offer-in-compromise of unpaid fees for processing the IRS’ levies by permitting FMS
tax (including interest and penalties) equal to or to add the fee to the liability being recovered, thereby
exceeding $50,000. This proposal requires that shifting the cost of collection to the delinquent
the Secretary of the Treasury establish standards to taxpayer. The offset amount would be included as
determine when an opinion is appropriate. part of the 15-percent limit on continuous levies
against income.
The fourth proposal modifies the way that Financial
Management Services (FMS) recovers its transaction

IRS Performance by Programs

FY 2004 FY 2005 FY 2006 FY 2007 FY 2008
Programs Performance Measure Target
Actual Actual Actual Target1 Target
Met?
Taxpayer Service Customer Service Representative (CSR) Level of Service (%) Oe 87.3% 82.6% 82.0% ✓ 78.0% 81.0%
Customer Accuracy - Tax Law Phones (%) - Ot 80.0% 89.0% 90.9% ✓ 91.0% 91.2%
Percent of Individual Returns Processed Electronically (%) - Oe (L) 46.5% 51.1% 54.1% ✗ 57.0% 61.6%
Enforcement Collection Coverage - units (%) Ot (L) ** 53.0% 54.0% ✓ 54.0% 54.0%
Examination Coverage-Individual (%) Oe (L) 0.8% 0.9% 1.0% ✓ 1.0% 1.0%
Automated Underreporter Efficiency E (L) 1,514 1,701 1,832 ✓ 1,932 1,808
Key: Oe - Outcome Measure, E - Efficiency Measure, Ot - Output/Workload Measure, L - Long-Term goal
1
Changes to the FY 2007 performance targets are attributed to funding adjustments under the Continuing Resolution, the implementation of new tax legislation,
and improvements resulting from program efficiencies
** Prior performance reported as 39 percent under old methodology

Description of Performance The Phase II report, which will be delivered in early

2007, includes additional research and establishes
The following is a summary, outlined by the the framework to develop short and long-term
IRS’ strategic goals, of significant program outcome goals and metrics for measuring the IRS’
performance improvements. progress on service improvements for taxpayers.
Improve Taxpayer Service • Electronic filing for individuals continued to
Assisting the public to understand their tax reporting increase and, for two years in a row, more than half
and payment obligations is the cornerstone of of all individual returns were filed electronically.
taxpayer compliance and is vital for maintaining The American Customer Satisfaction Index (ACSI)
public confidence in the tax system. The IRS shows that e-File taxpayers are significantly more
continues to meet this challenge by improving satisfied with their interaction with the IRS than
the quality and accuracy of responses from its call paper filers. Also, in FY 2006, nearly 14,000 large
centers and Taxpayer Assistance Centers (TACs) corporate taxpayers subject to the electronic filing
and expanding electronic self-service options. The mandate successfully e-filed their returns without
following information highlights the IRS’ taxpayer delay or backlog.
service achievements in FY 2006.
• Overall customer satisfaction with the award-
• The IRS delivered the first phase of the Taxpayer winning IRS.gov website increased five percentage
Assistance Blueprint, a comprehensive study points based on the ACSI and use continued to
that reviewed the IRS’ current taxpayer service grow. More than 1.3 billion web pages were viewed
options provided to taxpayers and identified areas on IRS.gov and over 24 million taxpayers used the
for improvements, including expanded taxpayer web application “Where’s My Refund?” to check
education and awareness, optimized use of the status of their refunds. The IRS also introduced
partner services, increased self-service options, and a set of web-based business products, such as
expanded training and support tools for taxpayers.

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Department of the Treasury – Budget in Brief FY 2008
 Internet-Employer Identification Number service • Increased collection case closures by 15 percent,
and Transcript Delivery System, for practitioners with a 9 percent increase in revenue received from
and other third parties. collection activities.

• The IRS provided a high level of service for • Increased the use of substitute for return
taxpayers seeking traditional phone-based or in- authority by 66 percent (substitute for return
person assistance. In FY 2006, the IRS’ customer authority allows the IRS to file a tax return for
assistance call centers answered 32.7 million assistor an individual or business when it does not file a
telephone calls and met the 82 percent level of required return). Examiners prepared and filed
service goal, with an accuracy rate of 91 percent for 665,000 returns for individuals and 182,000
tax law questions. The accuracy of responses to tax returns for businesses classified as non-filers.
law questions at the TACs increased to 83 percent,
compared to 75 percent in FY 2005. Waiting time • Continued to improve quality of the largest
at the TACs was minimized with more than eight corporate examinations. In FY 2006, Examination
out of ten customers being served in 30 minutes Quality for Industry and Coordinated Industry
or less. Examinations exceeded targets and increased to
85 percent and 96 percent, respectively.
• The IRS provided unprecedented tax relief in the
wake of the hurricanes that occurred along the In addition, the IRS strengthened its enforcement
Gulf Coast in August and September of 2005. In presence among entities with special tax statuses
addition to direct support for FEMA call centers, that may attract fraud and abuse. For example, in
the IRS provided assistance to the Small Business response to changes in the credit counseling industry
Administration and the Department of Labor to and new bankruptcy requirements, the IRS halted
expedite income verification for disaster loans and the growth in abusive credit counseling agencies
unemployment benefits. and undertook audits of the largest credit counseling
agencies that resulted in the revocation of exemption
Enhance Enforcement for a substantial share of this industry.
In FY 2006, enhancing the IRS’ enforcement
presence remained a top priority. The IRS also Modernize the IRS through its People, Processes,
focused its efforts on improving business processes and Technology
and modernizing its information systems, both The IRS must manage its resources, business processes,
powerful enablers of the IRS’ business goals. and technology systems optimally to effectively and
Focusing more on limited scope examinations and efficiently support its service and enforcement
productivity enhancements including improved mission. The IRS strives to become a “first choice”
analytics, workload identification, and selection employer where talented people want to work and can
systems that targeted high-risk cases, resulted in excel in a culture of high performance, empowerment,
the completion of more individual, high income and a quality work environment. The following
and small business audits in FY 2006 compared to information highlights the IRS’ modernization
FY 2005. The following information highlights the achievements in FY 2006.
IRS’ enforcement achievements in FY 2006. • For the seventh consecutive year, the IRS
• Reached a record level of $48.7 billion in achieved an unqualified audit opinion from
enforcement revenue in FY 2006, as a result the Government Accountability Office on all
of the IRS’ focus on corrosive activities of financial statements.
corporations, high income taxpayers and other • The IRS completed and introduced its Human
major areas of non-compliance. Capital (HC) Strategic Implementation Plan
• Increased high income audits (audits of taxpayers which focuses on promoting a highly productive
earning $100,000 or more) 18 percent over and engaged workforce. The plan aligns
FY 2005. Treasury’s HC Strategic Goals, the IRS’ Strategic

12
Department of the Treasury – Budget in Brief FY 2008
 Appropriated Accounts Internal Revenue Service
Goals, and the IRS’ HC Strategic Goals, and which increased the number of returns processed
establishes performance monitoring against to over 7.3 million and generated refunds in
objectives, processes, and projects. excess of $3.4 billion. CADE is expected to
process between 25 million to 30 million returns
• Successful BSM program delivery during in 2007.
the past two years demonstrates that the IRS
has established a foundation of disciplined • AMS will enable real-time access to taxpayer
project delivery and accomplishment. Overall, account information in order to support faster
the program delivered within the target of resolution of taxpayer issues by the IRS’ customer
+/- 10 percent variance for both cost and service representatives. The first release of the
schedule components for major release and sub- AMS is due the summer of 2007 to support
release milestones, a significant achievement real-time address change capability in CADE and
that validates BSM program management enable faster notice processing for a number of
effectiveness. This accomplishment is especially math error notices.
noteworthy because it was achieved while
transitioning from a contractor-led program to • MeF expanded the electronic filing of both
an IRS-led program. federal and state corporate income tax returns
and will begin efforts to automate partnership
Modernization efforts will continue to focus on four income tax forms enabling nearly 2.7 million
key tax administration systems that provide additional small business and self-employed taxpayers to
benefits to taxpayers and IRS employees: CADE, benefit from electronic filing. MeF processed
AMS, MeF, and Filing and Payment Compliance 550,000 corporate returns for the 2006
(F&PC). filing season.

• CADE will ultimately replace the IRS’ antiquated • F&PC delivered the first release, which analyzes
Master File system. CADE allows faster refunds tax collection cases and separates cases that
(processing refunds on a daily basis), improved require direct IRS involvement from those
taxpayer service, faster issue detection, more timely that can be handled by Private Collection
account settlement, and a robust foundation for Agencies (PCAs). The system identified and
integrated and flexible modernized systems. New delivered the first 12,500 cases to three PCAs in
capabilities were introduced in January 2006, September 2006.

13
Department of the Treasury – Budget in Brief FY 2008
14
Department of the Treasury – Budget in Brief FY 2008