The Government Accountability Office gave a thumbs-up to the Internal Revenue Service's $11-billion budget request, saying that the agency appears to have recognized that throwing money at enforcement can only reduce the tax gap so much.

The GAO said that the IRS's 2007 budget request is a small decrease after adjusting for inflation, and sets performance goals for service and enforcement that are all equal to, or higher than, its 2006 goals.

The GAO said that the IRS has improved its filing season performance so far in 2006, and that more refunds are being directly deposited, which is a faster and more convenient process. Electronic filing also continues to grow, but at a slower rate than in previous years. Taxpayers are also continuing the recent pattern of using IRS walk-in sites less and community-based volunteer sites more.

The budget reduces funding by 15 percent for the agency's business systems modernization program, an ongoing effort to replace aging information systems, which the GAO worried could impede progress in delivering improvements to taxpayers.

The GAO's major complaints are that more savings might be found through consolidating under-utilized operations, and said that it will be hard for the agency to a chieve its long-term compliance goals because the tax gap has persisted for many years at close to the current level.

"Reducing the tax gap will likely require new and innovative solutions such as simplifying the tax code, increasing income subject to withholding and increasing information reporting about income," the report said.

The report is available at www.gao.gov/new.items/d06615t.pdf.

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