Facing a series of budget cuts in recent years, the Internal Revenue Service is being urged to set a long-term strategy and use return on investment data to better manage budget uncertainty and set priorities at the agency, in a new report from the Government Accountability Office.
The report noted that since fiscal year 2010, the IRS budget has declined by about $900 million. As a result, funding is below fiscal year 2009 levels.
Staffing has also fallen by about 10,000 full-time equivalent employees since fiscal year 2010, and “performance has been uneven,” according to the GAO. For example, between fiscal years 2009 and 2013, the percentage of callers seeking live assistance and receiving it fluctuated between 61 percent and 74 percent. The IRS has taken some steps to address the budget cuts, such as reduced travel and training, the report acknowledged.
The GAO pointed out that financing of the federal government depends largely upon the IRS's ability to collect taxes, including providing taxpayer services that make voluntary compliance easier and enforcing tax laws to ensure compliance with tax responsibilities. For fiscal year 2015, the Obama administration requested a $12.5 billion budget for the IRS, a 10.5 percent increase over the fiscal year 2014 budget.
The IRS's strategic plan does not address managing budget uncertainty, although there are several indicators that funding will be constrained for the foreseeable future, the GAO pointed out. For example, in May 2014, the Office of Management and Budget generally required a 2 percent reduction in agencies’ fiscal year 2016 budget submissions. The OMB guidance also requires agencies to develop strategies for operating in an uncertain budget environment. According to the IRS, extensive senior leadership turnover has contributed to the lack of a long-term strategy, but without a strategy, the IRS may not be able to operate effectively and efficiently in an uncertain budget environment, the GAO observed.
For fiscal year 2015, the IRS calculated a projected return on investment for most of its enforcement initiatives. However, due to limitations—such as estimating the indirect effect that coverage has on voluntary compliance—the IRS does not calculate the actual ROI or use it for resource decisions. These limitations are important, the GAO pointed out, which is why the GAO recommended in 2012 that the IRS explore developing such estimates. Given that these limitations could take time to address, the GAO said the IRS could use existing ROI data to review disparities across different enforcement programs to inform resource allocation decisions.
Comparing projected and actual ROI is consistent with OMB guidance, the GAO noted, adding that while it is not the only factor in making resource decisions, the actual ROI could provide useful insights on the productivity of a program.
The GAO recommended that the IRS develop a long-term strategy to manage uncertain budgets, and calculate the actual ROI for implemented initiatives, compare it to projected ROI, and use the data to inform the agency’s resource decisions.
The IRS agreed with the GAO's recommendations, noting that it initiated a review of its base budget to ensure resources are aligned with its strategic plan and ROI is one of several factors relevant to making resource allocation decisions.
“We are pleased the GAO recognizes the significant funding reductions we have experienced since fiscal year 2010 and the impact those reductions have had on our staffing and performance as well as the steps that we have taken in recent years to reduce spending,” wrote IRS deputy commissioner for operations support Peggy Sherry in response to the report.
The head of the National Treasury Employees Union, which represents IRS employees, called attention to the findings of the report, noting that it underscores the need for an adequate budget for the agency.
“The GAO report is a clear call for this vital agency to be provided with the resources it needs to educate and help taxpayers voluntarily meet their tax obligations, as well as to perform the necessary enforcement steps to ensure compliance with our nation’s tax laws,” said NTEU president Colleen M. Kelley in a statement.