oversight

Tax Administration: IRS' Fiscal Year 2000 Budget Request and 1999 Tax Filing Season

Published by the Government Accountability Office on 1999-04-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                        United States General Accounting Office

GAO                     Testimony
                        Before the Subcommittee on Oversight
                        House Committee on Ways and Means



For Release
on Delivery
Expected at
                        TAX ADMINISTRATION
1:00 p.m. EDT
Tuesday
April 13, 1999
                        IRS’ Fiscal Year 2000
                        Budget Request and 1999
                        Tax Filing Season
                        Statement of James R. White, Director
                        Tax Policy and Administration Issues
                        General Government Division




GAO/T-GGD/AIMD-99-140
Statement

Tax Administration: IRS’ Fiscal Year 2000
Budget Request and 1999 Tax Filing Season

               Mr. Chairman and Members of the Subcommittee:

               We are pleased to participate in the Subcommittee’s inquiry into the
               administration’s fiscal year 2000 budget request for the Internal Revenue
               Service (IRS) and the status of the 1999 tax filing season.

               Our statement is based on (1) our review of the administration’s fiscal year
               2000 budget request for IRS and supporting documentation; (2) interim
               results of our review of the 1999 tax filing season; (3) our ongoing review
               of IRS’ restructuring efforts; and (4) our past and ongoing audits of various
               IRS activities, including efforts to modernize its computer systems, make
               its systems Year 2000 compliant, and implement the Government
               Performance and Results Act.

               With respect the fiscal year 2000 budget request, our statement makes the
               following points:

             • For fiscal year 2000, the administration is requesting about $8.2 billion and
               97,862 full-time equivalent (FTE) positions for IRS--almost the same as IRS’
               proposed operating level for fiscal year 1999. Although the request reflects
               little change in the overall funding available to IRS, there are some changes
               in how IRS plans to use the fiscal year 2000 funds. For example, the
               request includes about $197 million for three initiatives—organizational
               modernization, implementation of the IRS Restructuring and Reform Act
                                                                  1
               of 1998 (RRA98), and customer service training. These are critical
               initiatives. We cannot comment on the reasonableness of the requested
               funding, however, because IRS (1) is still developing plans that could
               affect the costs associated with organizational modernization and (2) did
               not provide us with sufficient detail to explain how some of the estimates
               were developed.

             • Congressional oversight of IRS’ fiscal year 2000 operations could be made
               more complex because (1) the fiscal year 2000 budget request is formatted
               in a way that may not reflect IRS’ organizational structure in fiscal year
               2000 and (2) many of the performance measures included in the fiscal year
               2000 budget request are new and two important measures (voluntary
               compliance and taxpayer burden) have yet to be developed. Both of these
               situations are understandable, however, because IRS (1) has not finished
               planning for the organizational modernization and (2) is in the initial stages
               of a major effort to develop a more balanced set of performance measures.


               1
                   Public Law 105-206, July 22, 1998.




               Page 1                                                  GAO/T-GGD/AIMD-99-140
                          Statement




                        • IRS’ current 5-year cost estimate to make its information systems Year
                          2000 compliant is $1.3 billion—about $345 million higher than its March
                          1998 estimate. Changes in business requirements for one of IRS’
                          replacement projects and a decision to upgrade or replace hardware and
                          software for minicomputers/fileservers and personal computers account
                          for some of the increase. For fiscal year 2000, IRS is requesting $250
                          million for its Year 2000 efforts. Most of that amount has been allocated to
                          the Century Date Change Project Office and one of IRS’ Year 2000
                          replacement projects. About $60 million of the $123.4 million allocated to
                          the Project Office covers funding requests for various activities that have
                          not yet been approved by IRS.

                        • IRS is requesting $1.46 billion for information systems in fiscal year 2000.
                          IRS’ plans for spending those funds are consistent with our prior
                          recommendations and related congressional direction. IRS is also
                          requesting for fiscal year 2001 an advance appropriation of $325 million for
                          its multi-year capital account for systems modernization. IRS has not
                          adequately justified that request in accordance with federal information
                          technology investment requirements. Thus, Congress should consider
                          either not funding the request or restricting obligation of the funds until
                          IRS develops the requisite cost analyses to justify the amount requested.

                          With respect to the 1999 filing season, preliminary data show that (1) the
                          accessibility and quality of IRS’ telephone service has deteriorated
                          considerably since last year, although accessibility has improved in recent
                          weeks; (2) the number of individual income tax returns filed electronically
                          is continuing to increase, although fewer returns are being filed by
                          telephone; (3) many taxpayers have made mistakes with respect to the
                          new child tax credit; and (4) new systems for processing returns and
                          remittances have been performing well.

                          For fiscal year 2000, the administration is requesting $8.249 billion and
IRS’ Fiscal Year 2000     97,862 full-time equivalent (FTE) positions, including $144 million and
Budget Request            2,095 FTEs to be funded outside the spending caps for the Earned Income
                                                             2
Maintains Staff and       Tax Credit compliance initiative. As shown in appendix I, that request is
                          virtually the same as IRS’ proposed operating level for fiscal year 1999
Funds at the Fiscal       ($8.246 billion and 97,959 FTEs). The overall increase of $3 million
Year 1999 Level           between the fiscal year 1999 operating level and the fiscal year 2000
                          request is the net result of several increases and decreases, the most
                          significant of which are


                          2
                              Fiscal year 2000 will be the 3rd year of funding for this 5-year initiative.




                          Page 2                                                                             GAO/T-GGD/AIMD-99-140
                             Statement




                           • an increase of $197 million for various initiatives, including organizational
                             modernization;
                           • an increase of $249 million to maintain current service levels; and
                           • a decrease of $444 million in funding for IRS’ information systems, which
                             includes funding for information technology investments and IRS’ efforts
                             to make its systems Year 2000 compliant.

The Reasonableness of        The fiscal year 2000 budget request includes $197 million for three
                             initiatives--$140 million for organizational modernization, $40 million and
Requested Funding for        500 FTEs to implement various provisions of RRA98, and $17 million for
Initiatives Is Uncertain     training to enhance customer service. (See appendix II.) Although we
                             agree that these are critical initiatives for IRS to undertake, we have no
                             basis for determining whether the requested funding is reasonable because
                             IRS (1) is still developing plans that could affect the amount of funding
                             actually needed for organizational modernization and (2) did not provide
                             specific details concerning how some of the estimates were developed.

                             Beginning in fiscal year 2000, IRS plans to reorganize its operations by
                             establishing four main operating divisions to serve specific groups of
                             taxpayers, including those with only wage and investment income, small
                             business/self-employed individuals, large and midsize businesses, and tax
                             exempt organizations. The administration has requested $140 million for
                             organizational modernization in fiscal year 2000. According to IRS, these
                             funds are needed to cover the costs for employee buyouts, relocations, and
                             retraining in conjunction with the reorganization. We could not assess the
                             reasonableness of the $140 million estimate because planning for the
                             reorganization is ongoing. Until IRS’ plans are finalized, it will be difficult
                             to estimate such things as buyouts, relocation expenses, and training
                             needs.

                             The fiscal year 2000 budget request also includes $40 million and 500 FTEs
                             for the implementation of various customer service provisions in RRA98.
                             Of the $40 million, $27 million is being requested to implement taxpayer
                             protection and rights provisions, such as increased notices and processing
                             for innocent spouse relief and due process in collection actions, Spanish
                             language taxpayer assistance, grants for low income taxpayer clinics, and
                             enhanced toll-free telephone and Internet access to IRS. The other $13
                             million is earmarked for efforts designed to increase the use of electronic
                             filing.

                             Another initiative included in the budget request calls for enhancing
                             customer service through improved training. For this initiative, the
                             administration is requesting $17 million. According to IRS, $13 million of



                             Page 3                                                  GAO/T-GGD/AIMD-99-140
                           Statement




                           this request is needed to permanently increase training funds that had been
                           reduced during the past few years. IRS believes that its limited training
                           funds have contributed to a deterioration in the competency of its
                           employees, particularly front-line employees who have contact with
                           taxpayers.

                           IRS did not provide detailed support to show how it developed the budget
                           estimates for implementing the RRA98 provisions and for training. This
                           made it difficult for us to assess whether IRS had a reasonable basis for
                           those estimates.

                           While each of these three initiatives appear to be critical if IRS is to
                           provide first-class customer service, without additional information it is
                           unclear what level of funding would be adequate for these initiatives in
                           fiscal year 2000.

                           Congressional oversight of IRS’ fiscal year 2000 operations could be more
Oversight Could Be         complex while IRS is modernizing its structure because (1) the budget
More Complex While         format may not reflect IRS’ operating structure in 2000; and (2) many
IRS Modernizes Its         performance measures presented in the fiscal year 2000 budget request are
                           new, and two important measures—voluntary compliance and taxpayer
Structure                  burden—have not been developed. The absence of a voluntary compliance
                           measure, for example, makes it is difficult to assess the effects of IRS’
                           diversion of enforcement resources to implement RRA98 and enhance
                           customer service.

Budget Format May Not      The format of IRS’ fiscal year 2000 budget request may not reflect IRS’
                           organizational structure in fiscal year 2000. This is understandable given
Reflect IRS Operating      the fact that IRS has not finalized its restructuring plans. Until those plans
Structure in Fiscal Year   are finalized, it would be premature for IRS to revise its budget format. At
2000                       the same time, however, any significant disconnect between the existing
                           budget structure and IRS’ operating structure could make congressional
                           oversight more complex.

                           The format of IRS’ fiscal year 2000 budget request is consistent with the
                           format of IRS’ fiscal year 1999 budget and generally reflects IRS’ current
                           operating structure. However, starting later this year, IRS will be shifting
                           from being geographically based in 33 districts offices to a customer-based
                           structure built around four major groups of taxpayers—wage and
                           investment income, small business and self employed, large and mid-size
                           business, and tax exempt. Technology management is to be centralized,
                           with each of the four major operating components being the business
                           owner for systems that support it. IRS has not completed its planning for



                           Page 4                                                  GAO/T-GGD/AIMD-99-140
                              Statement




                              this organizational modernization and, thus, it is not yet clear how much
                              change will actually take place in fiscal year 2000 versus years after 2000
                              and how those changes might affect oversight, if at all.

                              In conjunction with its organizational modernization, IRS is exploring
                              plans to develop new financial and budget structures that could aid
                              Congress in its oversight of IRS. We were told that IRS, as part of that
                              effort, would be considering the needs of this Subcommittee and other
                              congressional overseers. In that regard, there are two aspects of IRS’
                              current budget structure that could hinder effective oversight. Those two
                              aspects, which we discussed in our testimony on IRS’ fiscal year 1999
                                      3
                              budget and which are still relevant, involve (1) the inability to determine
                              how many FTEs and dollars IRS is devoting to enforcement versus
                              assistance and (2) the lack of a separate budget activity for the Office of
                              the Taxpayer Advocate.

Mix Between Enforcement and   Achieving IRS’ mission requires a mix of enforcement and assistance.
Assistance is Not Clear       Congressional oversight would be enhanced, in our opinion, if Congress
                              knew how IRS was allocating its resources between those two areas. That
                              information cannot be derived from IRS’ budget estimates.

                              For example, IRS is requesting $991.5 million and 20,874 FTEs for the
                              Telephone and Correspondence budget activity within the Processing,
                              Assistance, and Management appropriation. That activity covers all non
                              face-to-face contacts between IRS and taxpayers. Such contacts include
                              typical forms of assistance, such as answering telephone calls and
                              correspondence, as well as several enforcement activities, such as audits
                              handled through correspondence and attempts to collect overdue taxes via
                              the telephone. The budget estimates do not show how much of IRS’
                              request for Telephone and Correspondence is for assistance versus
                              enforcement. Similarly, despite its name, the Tax Law Enforcement
                              appropriation is not exclusively for enforcement. The $3.3 billion and
                              43,677 FTEs being requested for that appropriation include an unspecified
                              amount of money and FTEs for various forms of assistance, including
                              walk-in service and taxpayer education efforts. Finally, the $144 million
                              and 2,095 FTEs being requested for the EIC compliance initiative also
                              involve a mix of assistance and enforcement, but, again, that mix is not
                              apparent in IRS’ budget estimates.



                              3
                              Tax Administration: IRS’ Fiscal Year 1999 Budget Request and Fiscal Year 1998 Filing Season (GAO/T-
                              GGD/AIMD-98-114, March 31, 1998).




                              Page 5                                                                 GAO/T-GGD/AIMD-99-140
                                 Statement




Absence of a Separate Budget     The Office of the Taxpayer Advocate is responsible, among other things,
Activity for the Office of the   for the resolution of taxpayer problems through the Problem Resolution
Taxpayer Advocate                Program. Because of concerns about that Office’s independence, Congress
                                 included provisions in RRA98 that, among other things, authorized the
                                 National Taxpayer Advocate to appoint local advocates, evaluate and take
                                 personnel action with respect to any employee of any local advocate’s
                                 office, and submit annual reports directly to the Senate Committee on
                                 Finance and the House Committee on Ways and Means. We believe that
                                 congressional oversight of the Advocate’s Office and IRS’ efforts to solve
                                 taxpayer problems would be further enhanced and any concerns about the
                                 Advocate Office’s independence would be further mitigated if funding for
                                 that Office was separately identified in IRS’ budget.

                                 According to IRS, the fiscal year 2000 budget request includes about $43.6
                                 million and 628 FTEs for the Office of the Taxpayer Advocate. However,
                                 those amounts are not separately identified in IRS’ budget estimates but
                                 are included within the Telephone and Correspondence budget activity in
                                                                                               4
                                 the Processing, Assistance, and Management appropriation. According to
                                 the National Director for Budget, IRS would have had to make substantial
                                 coding changes to its financial system to set up a separate line item for the
                                 Advocate’s Office in IRS’ budget request. The National Director explained
                                 that it would not have been practical to start developing new financial
                                 codes for some organizational functions, such as the Advocate’s Office,
                                 when many other changes may be needed later as IRS proceeds with its
                                 organizational modernization. We agree that it makes sense to make all
                                 needed changes to IRS’ financial and budget structures at one time. Until a
                                 separate budget activity is established for the Advocate’s Office,
                                 congressional oversight might be enhanced if the narrative part of IRS’
                                 budget estimates provided data on the amount of resources being devoted
                                 to that activity in the current year and being requested for the coming year.

The Development of               IRS is changing most of its performance measures and the way it uses
                                 measures to focus attention on priorities, assess organizational
Performance Measures Is a        performance, and identify areas for improvement. A balanced set of
Work in Process                  performance measures is critical, not only for IRS management but also
                                 for effective oversight of IRS. As explained by IRS:

                                 “It is essential to establish appropriate quantitative performance measures for the IRS and
                                 for its major component operations. This is required by the Government Performance and

                                 4
                                   According to IRS’ National Director for Budget, the Taxpayer Advocate’s share of the budget will
                                 actually be much higher than the amount included in the request because IRS is in the process of
                                 transferring to the Advocate’s Office funding responsibility for caseworkers who had been funded by
                                 other functions, such as Examination and Customer Service.




                                 Page 6                                                                   GAO/T-GGD/AIMD-99-140
Statement




Results Act and is essential to the proper operation of any large organization. For this
reason, an integral part of the overall modernization program for the IRS is the
establishment of balanced performance measures which support and reinforce
achievement of the IRS’ restated mission and overall strategic goals.”

IRS is designing Servicewide performance measures in support of its
mission and strategic goals as well as performance measures at the
individual program level. In September 1998, the Commissioner
announced a new mission statement for IRS. It says that the mission of
IRS is to “provide America’s taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying the tax law
with integrity and fairness to all.” To achieve this mission, IRS established
three strategic goals—service to each taxpayer, service to all taxpayers,
and productivity through a quality work environment.

To achieve the first goal--service to each taxpayer—IRS plans to make
filing easier; provide first quality service to taxpayers needing help;
provide prompt, professional, helpful treatment to taxpayers in cases
where additional taxes may be due; and improve taxpayers’ access to toll-
free telephone assistance. To achieve the second goal—service to all
taxpayers—IRS plans to increase fairness of compliance and overall
compliance. To achieve the third goal—productivity through a quality
work environment—IRS plans to increase employee job satisfaction and
productivity while service improves. IRS said that it is realigning
processes and activities to ensure that they support the mission of IRS and
incorporate the principles of a balanced measurement system that focuses
across three areas—business results, customer satisfaction, and employee
satisfaction.

Identifying and defining Servicewide and program level performance
measures is work in process for IRS. As shown in table III.1, IRS has
defined 15 Servicewide performance measures and has one placeholder for
a productivity measure that has yet to be defined. Nine of the 15
Servicewide measures are new. IRS has also defined 68 measures to gauge
                                             5
its performance in specific functional areas. (See table IIL.2.) Of the 68
program level measures, more than half (40) are new.

Understandably, the lists of measures included with the fiscal year 2000
budget estimates are neither final nor complete because IRS is in the
process of planning its organizational modernization and identifying
performance measures. According to IRS’ National Director for Budget,
5
IRS’ functional area include such activities as Submission Processing, Telephone and Correspondence,
Examination, and Collection.




Page 7                                                                  GAO/T-GGD/AIMD-99-140
                               Statement




                               IRS will continue to revise and add other measures as it proceeds with the
                               organizational modernization and implementation of RRA98. In that
                               regard, IRS’ list of Servicewide performance measures does not include
                               two critical measures—voluntary compliance and taxpayer burden. Also,
                               one existing Servicewide measure—toll-free level of access—is not, in our
                               opinion, the most appropriate measure of IRS’ performance in providing
                               telephone service.

IRS’ Performance Measures Do   IRS’ performance measures do not yet include any measures of voluntary
Not Address Voluntary          compliance and taxpayer burden. While performance in both areas is
Compliance and Taxpayer        difficult to measure, they are two critical indicators of IRS’ performance
Burden                         and thus should be a vital part of any measurement system that IRS
                               develops. According to IRS officials, IRS recognizes the importance of
                               measuring these two areas of performance and plans to continue to
                               explore valid and reliable ways to measure them at the strategic level to
                               gauge IRS-wide performance.

                               Voluntary Compliance—IRS’ Organizational Performance Management
                               Executive told us that IRS would be unable to measure voluntary
                               compliance without something similar to the discontinued Taxpayer
                               Compliance Measurement Program (TCMP). In the past, IRS used TCMP
                               studies to assess voluntary compliance among taxpayers. Those studies
                               involved detailed audits of valid samples of tax returns. IRS projected the
                               results of those audits to determine the extent of voluntary compliance
                               among various groups of taxpayers. IRS conducted its last TCMP studies
                               on returns filed for tax years 1987 and 1988. IRS abandoned the TCMP
                               studies due to concerns about the additional cost and burden placed on
                               taxpayers. Since then, IRS has not considered TCMP studies to be a viable
                               option for assessing voluntary compliance.

                               Additionally, the Organizational Performance Management Executive
                               explained that the TCMP studies had other limitations. For example, the
                               TCMP studies could not be used to gauge compliance in “real time”—
                               either during the tax year in question or the year after the tax year in
                               question. Also, IRS can not attribute all changes in compliance to its
                               performance because voluntary compliance can be affected by other
                               factors, such as the economy and geographical location.

                               We believe that a modified version of the TCMP studies, that reduces the
                               burden on taxpayers, could be useful in assessing voluntary compliance.
                               For example, IRS could (1) use smaller samples that project nationwide
                               results, (2) sample groups of taxpayers and project the results to specific




                               Page 8                                                 GAO/T-GGD/AIMD-99-140
                                 Statement




                                 groups of taxpayers, or (3) continuously sample a small number of returns
                                 over a period of several years.

                                 Taxpayer Burden—IRS discontinued a performance measure it once used
                                 to gauge taxpayer burden—a ratio that compared private sector costs to
                                                                                       6
                                 the cost for IRS to collect $100 in “net tax” revenue. IRS discontinued this
                                 measure because it was based on an outdated methodology and was
                                 considered to be a poor indicator of overall burden. IRS is currently
                                 working with a consultant to develop a new means to measure taxpayer
                                 burden. Additionally, results of IRS’ taxpayer satisfaction surveys may
                                 provide some valuable insights on taxpayer burden.

Level of Service Would Be a      One important way that IRS helps taxpayers understand and meet their tax
More Appropriate Servicewide     responsibilities is through toll-free telephone assistance. By calling IRS,
Measure of IRS’ Performance in   taxpayers can, among other things, get answers to tax law questions,
Providing Telephone Service      inquire about the status of their account, or order forms and publications.
                                 It is important that IRS and Congress know how well IRS provides this
                                 critical service. Toward that end, IRS has included “toll-free level of
                                 access” as one of its Servicewide performance measures. We believe,
                                 however, that toll-free level of access is not the most appropriate
                                 Servicewide measure for assessing IRS’ performance in providing
                                 telephone service. The more appropriate measure, in our opinion, is “toll-
                                 free level of service.”

                                 The only difference between these two measures, and the reason we favor
                                 level of service, is the way in which abandoned calls are handled in
                                                            7
                                 computing the measures. IRS computes level of access by adding the
                                 number of calls answered and the number of abandoned calls and dividing
                                 that sum by the total number of call attempts (which is the sum of calls
                                                                                                           8
                                 answered, calls that are abandoned, and calls that receive a busy signal).
                                 Level of service is computed by dividing the number of calls answered by
                                 total call attempts. Thus, in effect, level of access considers abandoned
                                 calls as successful call attempts while level of service considers them
                                 unsuccessful. Although level of access is a useful measure because it
                                 indicates the extent to which taxpayers are able to access IRS' system (i.e.,

                                 6
                                  Net tax revenue is defined to include all revenue collected (i.e. income, employment, estate and gift,
                                 and excise taxes) less refunds.
                                 7
                                   Abandoned calls are ones in which the taxpayer has gained access to IRS’ system but subsequently
                                 decided, for unknown reasons, to hang up before an IRS assistor came on the line.
                                 8
                                   Appendix I of IRS’ Fiscal Year 2000 Congressional Justification incorrectly describes this measure as
                                 being computed by dividing calls answered by calls attempted. That is actually the way level of service
                                 is computed.




                                 Page 9                                                                      GAO/T-GGD/AIMD-99-140
                         Statement




                         not get a busy signal), it does not indicate the extent to which taxpayers
                         are successful in actually talking to someone in IRS. For that reason, we
                         believe that level of service is the more appropriate Servicewide measure
                         of IRS’ performance in providing telephone assistance.

Impact of Diversion of   IRS' budget request for fiscal year 2000 discusses the diversion of
                         resources in fiscal year 1999 to implement various provisions of RRA98
Resources Is Uncertain   and to provide assistance to taxpayers. There is insufficient information,
                         however, for IRS or Congress to assess the overall impact of these
                         diversions.

                         RRA98 contains various provisions that give additional protection to
                         taxpayers (such as a relief from joint liability for innocent spouses), shift
                         the burden of proof from taxpayers to IRS in certain circumstances, and
                         make IRS liable for some legal fees incurred by taxpayers. IRS says that it
                         plans to divert about 2,500 FTEs and $200 million in fiscal year 1999 to
                         implement these provisions. According to IRS, this diversion marks the
                         "beginning of a continuing curtailment of some compliance activities,
                         primarily the examination of tax returns and the collection of delinquent
                         accounts." In addition, IRS says that another 200 FTEs will be detailed
                         from the Collection function to the Customer Service function in fiscal
                         year 1999 to increase the quality of service to taxpayers through the walk-
                         in program. Other diversions are possible as IRS attempts to improve the
                         quality of its telephone service, which we discuss later.

                         Although IRS has made statements in the past about the potential impact
                         of these resource diversions on enforcement revenue, its current position
                         is that the monetary effect of such diversions is unknown. We agree with
                         that position. To correctly assess the monetary effect of such diversions,
                         IRS needs to be able to estimate not only the negative effect on
                         enforcement revenues but also the potential positive effect on non-
                         enforcement revenues from any improved taxpayer service resulting from
                         the resource diversions.

                         It is expected, for example, that implementation of RRA98 will result in
                         better service to taxpayers. Better taxpayer service could lead to an
                         increase in voluntary compliance, which, in turn, could lead to increased
                         revenues. Without a measure of voluntary compliance, as discussed
                         earlier, there is no way for Congress, IRS, or others to assess such an
                         impact.




                         Page 10                                                 GAO/T-GGD/AIMD-99-140
                           Statement




                           IRS’ efforts to make its systems Year 2000 compliant represent one of the
The 5-Year Cost                                                        9
                           most expensive civilian agency programs. The current 5-year cost
Estimate for Making        estimate for IRS’ Year 2000 efforts is $1.3 billion—about $345 million more
IRS’ Systems Year 2000     than its March 1998 cost estimate. IRS estimates that if its Year 2000
                           efforts are unsuccessful, the adverse effects could include millions of
Compliant Has              erroneous tax notices and delayed or erroneous refunds. Accordingly, the
Increased, and Some        Commissioner of Internal Revenue has designated this effort a top priority.
Needs for Fiscal Year      IRS is requesting about $250 million and 239 FTEs for its Year 2000 efforts
2000 Are Still                                  10
                           for fiscal year 2000. About $34 million of the $250 million is for a
Uncertain                  contingency fund for needs that may be identified later in calendar year
                           1999.

                           To make its information systems Year 2000 compliant, IRS was to (1) fix
                           existing systems by modifying application software and data and
                           upgrading hardware and system software where needed, (2) replace
                           systems if correcting them is not cost-effective or technically feasible, and
                           (3) retire systems that will not be needed after the year 2000. IRS’ Year
                           2000 efforts include the following two major system replacement projects:

                         • The Service Center Mainframe Consolidation (SCMC) project involves
                           consolidation of IRS’ mainframe computer processing operations from 10
                           service centers to 2 computing centers. Specifically, SCMC was to (1)
                           replace and/or upgrade mainframe hardware, systems software, and
                           telecommunications networks; (2) replace about 16,000 terminals that
                           support frontline customer service and compliance activities; and (3)
                           replace the system that provides security functions for on-line taxpayer
                           account databases with a new system called the Security and
                           Communications System. Replacement of the terminals and
                           implementation of the Security and Communications System are critical to

                           9
                             IRS’ Year 2000 efforts are necessary because IRS’ information systems were programmed to read two-
                           digit date fields. Therefore, if unchanged, these systems would interpret 2000 as 1900, seriously
                           jeopardizing tax processing and collection activities.
                           10
                            The $250 million is referred to as an increase in IRS’ budget request because IRS’ fiscal year 1999
                           appropriation did not specifically include funds for IRS’ Year 2000 efforts. For fiscal year 1999, IRS’
                           Year 2000 efforts were funded from a governmentwide Year 2000 fund that was established in the
                           Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999 (P.L. 105-
                           277). This Act provided $2.25 billion in emergency funding for Year 2000 computer conversion
                           activities for nondefense activities. The Director of the Office of Management and Budget (OMB) is
                           responsible for allocating these funds. As of February 12, 1999, OMB had released $1.56 billion; $690
                           million remains available for emerging requirements. IRS received $483.3 million from the fund, of
                           which $358.3 million is to be used for Year 2000 activities. According to Department of the Treasury
                           budget documents, Congress earmarked the remaining $125 million for other information systems
                           investments that were initially included in IRS’ fiscal year 1999 budget request.




                           Page 11                                                                   GAO/T-GGD/AIMD-99-140
                                        Statement




                                        IRS’ achieving Year 2000 compliance.

                                      • The Integrated Submission and Remittance Processing System (ISRP) is to
                                        replace IRS’ two primary tax return and remittance input processing
                                        systems (the Distributed Input Processing System and the Remittance
                                        Processing System) with a single system that is to be Year 2000 compliant.
                                        IRS established a goal to complete most of its Year 2000 work by January
                                        31, 1999, to help ensure that it would (1) have a Year 2000 compliant
                                        environment implemented for the 1999 filing season and (2) provide time
                                        for resolving any problems that surfaced during the 1999 filing season and
                                        its Year 2000 end-to-end testing.

                                        For fiscal year 2000, IRS is requesting (1) $123.4 million for the activities of
                                        the Century Date Change (CDC) Project Office, which oversees the
                                        conversion and testing of changes made to existing systems; (2) $100.6
                                        million for SCMC; and (3) $26.4 million for ISRP.

5-Year Cost Estimate                    The 5-year cost estimate for IRS’ Year 2000 efforts increased by $345.2
                                        million between March 1998 and March 1999. In March 1998, the 5-year
Increased                               cost estimate for fiscal years 1997 through 2001 was about $1 billion; IRS’
                                        current cost estimate is $1.35 billion. Table 1 shows that the activities
                                        under the purview of the CDC Project Office and SCMC account for most
                                        of the increase.

Table 1: 5-Year Cost Comparison (in
Millions)                                                                            Fiscal years              Fiscal years
                                                                                       1997–2001                 1997–2001
                                                                                     (March 1998               (March 1999
                                        Spending category                               estimate)                 estimate) DIfference
                                        CDC Project Office                                 $572.0                   $701.4      $129.4
                                        SCMC                                                332.2                    499.8       167.6
                                        ISRP                                                101.7a                   149.9         48.2
                                        Total                                            $1,005.9                 $1,351.1      $345.2
                                        a
                                         Does not include estimates for fiscal years 2000 and 2001. IRS budget documents indicate that
                                        these estimates were identified in April 1998. If these amounts are included, the ISRP cost estimate
                                        is $146.3 million—only $3.6 million less than the current estimate.
                                        Source: IRS’ Year 2000 cost summaries for fiscal years 1997–2001.


CDC Project Office                      The CDC Project Office is responsible for (1) overseeing efforts to fix over
                                        60 million lines of application software, (2) ensuring that hardware and
                                        systems software are compliant, and (3) overseeing the Year 2000 testing
                                        of IRS’ information systems. As shown in table 1, IRS’ 5-year cost estimate
                                        for CDC increased by $129.4 million between March 1998 and March 1999.
                                        Most of the increase—$99 million—is for fiscal year 1999.




                                        Page 12                                                                  GAO/T-GGD/AIMD-99-140
Statement




We had difficulty identifying which aspects of the CDC Project Office
budget accounted for all of the $99 million increase because at the time
IRS officials developed the March 1998 estimate they were still refining
their Year 2000 needs. At that time, IRS had allocated about $50 million to
a contingency fund that was to become available for needs as they
emerged. According to IRS officials, for those needs that were defined as
of March 1998, the largest cost increases are for certain contractor
services and for computer hardware and software for IRS’ personal
computers and minicomputers/file servers.

As we noted in our June 1998 report on IRS’ Year 2000 efforts, IRS placed
priority on assessing and fixing its mainframe computers, which
                                                  11
encompass most of IRS’ tax processing systems. Accordingly, the needs
for IRS’ minicomputers/file servers and personal computers were less
defined at that point in time. For example, since developing the March
1998 estimate, IRS has decided to replace about 35,000 personal computers
and the associated systems and commercial off-the-shelf software. As part
of this replacement effort, IRS plans to reduce the number of commercial
software and hardware products for personal computers in its inventory
from about 4,000 to 60 core standard products.

Table 2 shows the CDC Project Office’s spending categories and
associated dollar amounts for fiscal year 1999 as of February 23, 1999.




11
 IRS’ Year 2000 Efforts: Business Continuity and Contingency Planning Needed for Potential Year 2000
Failures (GAO/GGD-98-138, June 15, 1998).




Page 13                                                                 GAO/T-GGD/AIMD-99-140
                                       Statement




Table 2: CDC Project Office Spending
Categories and Associated Dollar       Spending category                                                           Amount (in millions)
Amounts for Fiscal Year 1999           Personal computers                                                                          $51.0
                                       End-to-end testinga                                                                          48.2
                                       Labor and discretionary                                                                      38.3
                                       Program inventory and management                                                             23.2
                                       Applications and development                                                                 19.6
                                       Minicomputers/file servers                                                                   16.7
                                       Telecommunications                                                                           14.0
                                       Noninformation technology                                                                     9.2
                                       Contingency fund                                                                              8.8
                                       Independent ver
                                       ification and validationb                                                                          8.8
                                       Mainframe computers                                                                                1.1
                                                                                                                                               c
                                       Total                                                                                            $239.0
                                       a
                                        The end-to-end test is to verify that a defined set of interrelated systems, which collectively support a
                                       business function, interoperate as intended in an operational environment. The test is to have two
                                       parts—the first part is scheduled from April to July 1999; the second part is scheduled from October to
                                       December 1999.
                                       b
                                        Provides for an organization that is technically, managerially, and financially independent of the
                                       systems developers to assess, among other things, whether a system meets the user’s requirements.
                                       c
                                           Total does not add due to rounding.
                                       Source: CDC budget data.

                                       We cannot comment on the adequacy of the amounts that IRS has
                                       allocated to each of these categories. However, as we would have
                                       expected, IRS has allocated large portions of its budget to those major
                                       Year 2000 activities that are to be completed in fiscal year 1999—the
                                       replacement effort for its personal computers and its end-to-end testing
                                       activities.

                                       To help ensure that agencies have sufficient funds for Year 2000 activities,
                                       OMB has authority to release funds from the government-wide Year 2000
                                       fund. OMB notified agencies to request funding for unforeseen
                                       requirements as they emerge. Accordingly, in March 1999, after allocating
                                       the $8.8 million in its contingency fund, IRS requested an additional $35
                                       million from the OMB Year 2000 fund to cover the net unfunded needs for
                                                                                                              12
                                       fiscal year 1999. As of March 1999, OMB had approved $22.3 million.

                                       IRS’ fiscal year 2000 budget request includes $123.4 million for the CDC
                                       Project Office. According to CDC Project Office budget documents, as of
                                       March 31, 1999, about $29 million of the $123.4 million has been allocated,
                                       primarily for CDC Project Office labor and discretionary costs. The CDC
                                       12
                                        IRS requested funds for several activities such as contingency planning, telecommunications,
                                       minicomputers/file servers, and independent verification and validation. OMB approved funding for
                                       most of the areas, but reduced the amount for some areas. According to IRS officials, OMB approved
                                       funding for those areas in which IRS had demonstrated an actual need and not for anticipated needs.
                                       For example, an anticipated need would include any fixes that might be needed as a result of end-to-
                                       end testing.




                                       Page 14                                                                     GAO/T-GGD/AIMD-99-140
                                        Statement




                                        Project Office has received funding requests for about $60 million which
                                        are still subject to approval, leaving a contingency amount of about $34
                                        million. IRS officials said that the contingency funds are to be used for
                                        needs that may be identified through (1) end-to-end testing, (2) risk
                                                                 13
                                        management activities, (3) Year 2000 contingency plans for IRS’ core
                                                              14
                                        business processes, and (4) an independent review of IRS’ application
                                        software and commercial off-the-shelf software Year 2000 changes.

SCMC                                    SCMC cost increases account for $167.6 million of the $345.2 million
                                        increase in the 5-year Year 2000 cost estimate. As shown in table 3, IRS’
                                        March 1998 cost estimate for SCMC was $332.2 million, compared to its
                                        current cost estimate of $499.8 million.

Table 3: Comparison of March 1998 and
March 1999 SCMC 5-Year Cost             Year of           FY 1997
                                                 a                                b
Estimates                               estimate           actual       FY 1998         FY 1999        FY 2000        FY 2001           Total
                                        March 1998
                                        estimate               43.8         167.3            76.0           38.4            6.7       $332.2c
                                        March 1999
                                        estimate               43.8         168.3          111.6            97.3           78.8        $499.8
                                        Difference                0           1.0           35.6            58.9           72.1        $167.6
                                        a
                                         Estimate includes only contractor costs, except where noted. According to IRS officials, there are
                                        $64 million in additional costs excluded from the estimates. As of March1999, these costs include (1)
                                        additional IRS staffing costs of $32 million, (2) $20 million for maintenance costs in the seven service
                                        centers that have not yet had their tax processing activities moved to the computing centers, and (3)
                                        $12 million in relocation and training costs for fiscal years 1999, 2000, and 2001.
                                        b
                                         According to SCMC officials, the estimates for fiscal year 1998 also include relocation, training, and
                                        IRS staffing costs.
                                        c
                                          In March 1998, IRS’ cost estimate for the Year 2000 portions of SCMC was $265 million. IRS no
                                        longer reports SCMC Year 2000 costs.
                                        Source: SCMC expenditure and budget documents.


                                        When we testified in March 1998, we said that two of the factors that had
                                        the potential to increase SCMC costs were pending expanded business
                                        requirements and schedule delays. According to IRS officials, those two
                                        factors together with a decision to upgrade one of the tax processing
                                        systems, ultimately contributed to cost increases.

                                        13
                                         IRS’ CDC Project Office outlined a risk management process that is to, among other things, (1)
                                        identify risks to the successful completion of Year 2000 goals, (2) coordinate the development of risk
                                        mitigation strategies, and (3) oversee the execution of these strategies.
                                        14
                                         In our June 15, 1998, report, we said that IRS’ Year 2000 contingency planning efforts fell short of
                                        meeting the guidelines included in our Year 2000 Business Continuity and Contingency Planning Guide.
                                        Accordingly, we recommended that IRS take steps to broaden its contingency planning efforts to help
                                        ensure that it had adequately assessed the vulnerabilities of its core business processes to potential
                                        Year 2000 induced failures. In response to our recommendations, IRS determined that it needed to
                                        develop 37 contingency plans to address various Year 2000 failure scenarios for its core business
                                        processes. IRS officials told us that 26 plans were done as of March 31, 1999; the remaining 11 plans
                                        are to be completed by May 31, 1999.




                                        Page 15                                                                    GAO/T-GGD/AIMD-99-140
Statement




According to IRS officials, IRS’ fiscal year 2000 budget request of $100.6
        15
million for SCMC reflects much of the costs associated with
implementing expanded requirements and the contractor costs, staff
relocation costs, and training costs for moving the tax processing activities
of five service centers in fiscal year 2000. According to SCMC officials,
cost estimates for fiscal years 2000 and 2001 could decrease because (1)
they believe the contractor’s cost estimates may be overstated and (2)
some SCMC activities may be funded from IRS’ Operations and
Maintenance budget activity as systems are fully implemented.

According to SCMC officials, expanded business requirements for disaster
          16
recovery and a decision to upgrade the hardware and software for one of
                           17
its tax processing systems account for the vast majority of the $167.6
million increase in the 5-year cost estimate for SCMC. For disaster
recovery, IRS plans to obtain contractor services and purchase hardware,
software, and related telecommunications for its tax processing mainframe
computers and telecommunications networks. SCMC officials said that
the tax processing system upgrade is to (1) increase production capacity
and disaster recovery capabilities, (2) provide the necessary systems
architecture for IRS’ planned modernization blueprint, and (3) provide
substantial savings by reducing the hardware, software, and maintenance
costs associated with the existing system.

According to SCMC officials, the need to have contractor staff on board
longer than anticipated to accommodate schedule delays accounts for
some of the $167.6 million cost increase. Specifically, in March 1999, IRS
decided to delay moving the tax processing activities of five service
                                                    18
centers, instead of completing these moves in 1999.


15
 This $100.6 million includes $3.3 million in relocation and training costs that is not included in the
March 1999 estimate for fiscal year 2000 shown in table 3.
16
 Disaster recovery refers to the procedures or plans for responding to the loss of an information
system due to flood, fire, or computer virus. Under the original SCMC disaster recovery plan, in the
event of a disaster, 70 percent of the computing center’s processing capability was to be restored in 36
hours. Under the expanded requirements, 100 percent of the processing capability is to be restored in 6
hours.
17
 This tax processing system encompasses IRS’ automated collection function and the print capabilities
for notices to taxpayers.
18
 This decision represents the second significant schedule change for SCMC. Originally, IRS had
planned to have the tax processing activities of the 10 service centers moved to the computing centers
by the end of calendar year 1998. In May 1998, IRS revised the schedule and established two new
schedules—one for the Year 2000 portion of SCMC and another for the tax processing activities. The
Year 2000 portion was to be completed by December 31, 1998. The schedule for tax processing
activities called for moving the activities of five service centers by 1998 and the remaining five service
centers in calendar year 1999. As of January 31, 1999, IRS had completed the Year 2000 portion of




Page 16                                                                      GAO/T-GGD/AIMD-99-140
                     Statement




                     IRS officials cited several reasons for changing the SCMC schedule.
                     Specifically, IRS’ business organizations had limited involvement in SCMC
                     during its early stages. As their involvement increased, they expressed
                     concern about the ambitious schedule and helped identify certain critical
                     success factors that needed to be addressed for SCMC to be successful.
                     Some of these critical success factors include (1) fully implementing the
                     automated processes associated with the consolidations before the service
                     centers’ tax processing activities were moved to the computing centers, (2)
                     providing adequate numbers and types of staff in the service centers and
                     computing centers, and (3) developing new business procedures for
                     operating under consolidation. Also, SCMC officials said that the original
                     schedule did not acknowledge that new issues might surface during each
                     move because of operational differences among the service centers.
                     According to IRS officials, the revised schedule provides additional time
                     for addressing these issues.

                     Beginning in 1995, we reported on serious and pervasive information
Information          technology (IT) management and technical weaknesses. Since then, we
Technology Budget:   have monitored IRS’ progress in implementing our recommendations to
Observations and     correct these weaknesses and have reviewed IRS’ annual budget requests
                     to ensure that they are consistent with IRS’ modernization capability and
Suggestions          are otherwise adequately justified.

                     IRS’ IT budget request for fiscal year 2000 includes $1.46 billion and 7,399
                     FTEs to fund such things as operation and maintenance of existing
                     systems, activities to make IRS’ systems Year 2000 compliant, correction
                     of IT management weaknesses, and development of systems to sustain IRS
                     operations until IRS is ready to modernize. These funding categories for
                     fiscal year 2000 are consistent with our prior recommendations and related
                     congressional direction concerning IT spending.

                     In addition to the $1.46 billion, IRS is requesting for fiscal year 2001 an
                     advance appropriation of $325 million for IRS’ multiyear capital account
                     for systems modernization, referred to as the “Information Technology
                     Investments Account” (ITIA). However, IRS has not adequately justified
                     this ITIA request because IRS has not yet developed its modernization
                     strategic plan and supporting cost-benefit analyses for proposed system
                     investments. Accordingly, we suggest that Congress consider either
                     denying (i.e., not funding) the $325 million advance request or restricting


                     SCMC and moved the tax processing activities of three service centers. In March 1999, IRS revised the
                     schedule for moving the tax processing activities. Under the revised schedule, two additional moves
                     are to occur in calendar year 1999, four in calendar year 2000, and one in early January 2001.




                     Page 17                                                                  GAO/T-GGD/AIMD-99-140
                           Statement




                           its obligation until IRS develops the requisite cost analyses to justify the
                           amount requested, which IRS plans to do by September 30, 1999.

IRS Acting to Correct IT   In July 1995, we reported on serious management and technical
                           weaknesses with IRS’ modernization and made over a dozen
Management and Technical   recommendations to help IRS build the capability necessary to
Weaknesses                                                      19
                           successfully modernize it systems. In June 1996, we reported that IRS
                                                                                          20
                           had made progress in implementing our recommendations. However, to
                           minimize the risk of IRS investing in systems before the recommendations
                           were fully implemented, we suggested that Congress limit IRS’ IT spending
                           to certain cost-effective categories. These spending categories were those
                           that (1) support ongoing operations and maintenance; (2) correct
                           pervasive management and technical weaknesses, such as a lack of
                           requisite systems life cycle discipline; (3) are small, represent low
                           technical risk, and can be delivered in a relatively short time frame; or (4)
                           involve deploying already developed systems that have been fully tested,
                           are not premature given the lack of a complete systems architecture, and
                           produce a proven, verifiable business value. The act providing IRS’ fiscal
                                                     21
                           year 1997 appropriations and the related conference report limited IRS’ IT
                           spending to efforts consistent with these categories.

                           In 1997, IRS continued to address our recommendations. For example, in
                           May 1997, IRS issued its modernization blueprint. We briefed IRS
                           appropriations and authorizing committees on the results of our
                           assessment of IRS’ modernization blueprint in September 1997. In those
                           briefings and in a subsequent report, we concluded that the modernization
                           blueprint was a good first step that provided a solid foundation from which
                           to define the level of detail and precision needed to effectively and
                                                                                           22
                           efficiently build a modernized system of interrelated systems. However,
                           we also noted that the blueprint was not yet complete and did not provide
                           enough detail for building and acquiring new systems. As a result, the
                           conference report accompanying IRS’ fiscal year 1998 appropriations act
                           again limited IRS’ fiscal year spending to efforts that were consistent with
                           the aforementioned spending categories. IRS’ fiscal year 1999

                           19
                            Tax Systems Modernization: Management and Technical Weaknesses Must Be Corrected If
                           Modernization Is To Succeed (GAO/AIMD-95-156, July 26, 1995).
                           20
                            Tax Systems Modernization: Actions Underway But IRS Has Not Yet Corrected Management and
                           Technical Weaknesses (GAO/AIMD-96-106, June 7, 1996).
                           21
                                Public Law 104-208, September 30, 1996.
                           22
                            Tax Systems Modernization: Blueprint Is a Good Start But Not Yet Sufficiently Complete to Build or
                           Acquire Systems (GAO/AIMD/GGD-98-54, Feb. 24, 1998).




                           Page 18                                                                 GAO/T-GGD/AIMD-99-140
Statement




appropriation act and conference report continued these spending
            23
limitations.

In its budget requests for fiscal years 1998 and 1999, IRS requested over $1
billion for ITIA. In our testimonies before this Subcommittee on these
requests, we questioned the justification for these funds because (1) all or
major parts of the amounts being requested were not based on analytical
data or derived using formal cost estimating techniques, as required by
                                                                        24
OMB, and (2) IRS had not yet developed the capability to modernize.
Subsequently, Congress provided $506 million for the account.
Specifically, it appropriated $325 million in fiscal year 1998, of which $30
million it rescinded in May 1998 for urgent Year 2000 century date change
requirements. Congress also provided $211 million in fiscal year 1999. In
providing these sums, Congress prohibited their obligation until IRS and
the Department of the Treasury submitted to Congress for approval an
expenditure plan that (1) implements IRS’ modernization blueprint; (2)
meets OMB investment guidelines; (3) is reviewed and approved by OMB
and Treasury’s IRS Management Board and is reviewed by us; (4) meets
requirements of IRS’ life cycle program; and (5) is in compliance with
acquisition rules, requirements, guidelines, and systems acquisition
management practices of the federal government.

In December 1998, IRS awarded its Prime Systems Integration Services
Contract (PRIME) for systems modernization. IRS is working with the
PRIME and other support contractors to develop a strategic business
systems plan and complete the modernization blueprint, as we
recommended, and to account for (1) changes in system requirements and
priorities caused by IRS’ organizational modernization and (2) changes to
accommodate new technology and to implement RRA98 requirements.
IRS is also working with the PRIME to establish disciplined life cycle
management processes and structures, including mature software
development and acquisition capabilities, before IRS begins building
modernized systems. By June 30, 1999, IRS plans to have these processes
and structures in place and have the necessary approvals to begin using
ITIA funds to modernize systems. By September 30, 1999, IRS also plans
to have its strategic business systems plan for the entire modernization,
which is to identify the systems to be modernized over the next 5 years,
their estimated costs, business case justification, the sequence in which


23
     Public Law 105-277, October 21, 1998.
24
 GAO/T-GGD/AIMD-98-114 and Tax Administration: IRS’ Fiscal Year 1997 Spending, 1997 Filing
Season, and Fiscal Year 1998 Budget Request (GAO/T-GGD/AIMD-97-66, Mar. 18, 1997).




Page 19                                                              GAO/T-GGD/AIMD-99-140
                            Statement




                            they will be developed and deployed, and the architecture standards
                            governing their development.

Fiscal Year 2000            IRS’ fiscal year 2000 request of $1.46 billion for information systems
                            appears consistent with the aforementioned spending categories.
Information Systems         Specifically, 78 percent of the request, or $1.14 billion, is to (1) operate and
Budget Request Is in Line   maintain information systems that support tax administration, (2)
With GAO and                consolidate mainframe computing from 10 centers to 2, and (3) restructure
Congressional Spending      the information systems organization. Seventeen percent of the request, or
                            $250 million, is for Year 2000 conversion activities. The remaining 5
Categories                  percent, or $66 million, is for initiatives to correct IT management
                            weaknesses or to develop systems to sustain IRS operations until it
                            implements modernized systems. For example, funding from this activity
                            is to be used to complete and implement the modernization blueprint,
                            including establishing system life cycle management processes.

IRS Has Not Adequately      Key provisions of the Clinger-Cohen Act, the Government Performance
                            and Results Act, and OMB Circular No. A-11 and supporting memoranda,
Justified Its Fiscal Year   require that, before requesting multiyear funding for capital asset
2001 ITIA Request           acquisitions, agencies develop accurate, complete cost data and perform
                            thorough analyses to justify the business need for the investment. For
                            example, agencies must show that investments (1) support a critical
                            agency mission; (2) are justified by life cycle cost-benefit analyses; and (3)
                            have cost, schedule, and performance goals.

                            IRS has not performed the requisite analyses to justify its fiscal year 2001
                            investment account request of $325 million because the information it
                            needs to prepare such analyses will not be available until IRS completes its
                            strategic business planning in September 1999. Consequently, IRS was
                            unable to base its budget request on a clear and complete definition of
                            fiscal year 2001 IT investments and did not justify these investments with
                            cost-benefit analyses. Instead, IRS officials told us that they needed to
                            develop an estimate for the fiscal year 2000 budget process in order to
                            ensure that funds would be available for modernization in fiscal year 2001.
                            These officials stated that if they did not have a budgetary “placeholder”
                            for modernization, IRS faced the possibility of a funding shortfall in fiscal
                            year 2001 when IRS plans to be building modernized systems.
                            Consequently, IRS developed its budget request using (1) cost estimates
                            from its March 1998 PRIME request for proposal (RFP) and (2) a cost
                            estimate that was documented following our inquiries and using what IRS
                            termed “rough order of magnitude” cost estimating processes. However,
                            these estimates have shortcomings. First, IRS officials acknowledged that
                            the RFP cost estimates are out-of-date and are for IT projects underway



                            Page 20                                                  GAO/T-GGD/AIMD-99-140
                              Statement




                              now and not planned for fiscal year 2001. Second, the “rough order of
                              magnitude” estimate lacked verifiable analysis and supporting data.
                              Finally, neither estimate was based on a specified set of fiscal year 2001 IT
                              investments because these investments have yet to be defined.

Matter for Consideration by   We support IRS’ efforts to first strengthen its modernization capability and
                              then acquire modernized systems. However, IRS’ fiscal year 2001 request
the Congress                  for ITIA funds is not justified in accordance with federal IT investment
                              requirements. Accordingly, we suggest that Congress consider either
                              denying (i.e., not funding) the $325 million advance request or restricting
                              its obligation until IRS develops the requisite cost analyses to justify the
                              amount requested, which IRS plans to do by September 1999. Neither of
                              these congressional actions should impact fiscal year 1999 and 2000
                              modernization efforts because the ITIA has enough funds to cover IRS’
                              proposed spending in both years. Specifically, of the $506 million in the
                              ITIA, IRS plans to spend about $361 million during fiscal years 1999 and
                              2000—$79 million and $282 million, respectively—which will leave $145
                              million for fiscal year 2001.

                              At the request of this Subcommittee, we are reviewing IRS’ performance
Preliminary Data on           during the 1999 tax filing season. Our preliminary work has shown some
the 1999 Filing Season        mixed results. Specifically, (1) taxpayers have experienced a significant
Show Mixed Results            decline in IRS’ telephone service, although service has improved in recent
                              weeks; (2) the number of individual income tax returns filed electronically
                              has continued to increase, although the number filed over the telephone
                              has decreased; (3) there appears to be a significant amount of confusion
                              among taxpayers with respect to the new child tax credit; and (4) new
                              computer systems for processing returns and remittances appear to be
                              performing well.

Significant Decline in        According to IRS’ data, taxpayers who called IRS with tax questions during
                              the first few weeks of the 1999 filing season had considerable difficulty
Telephone Service             reaching IRS on the telephone and, once they did reach IRS, getting an
                              accurate answer to their questions. Although that situation has improved
                              in recent weeks, IRS’ performance overall has declined significantly
                              compared to its level at the same point in time last year.




                              Page 21                                                GAO/T-GGD/AIMD-99-140
                                            Statement




Ability of Taxpayers to Reach               Over the last few years, there has been a steady increase in the ability of
IRS on the Telephone Has                    taxpayers to reach IRS by telephone. This year, however, there have been
Worsened Since Last Year                    serious problems. As shown in table 4, IRS data for the first 3 months of
                                            this filing season compared to the same period last year show a significant
                                                                         25
                                            decline in IRS’ performance.

Table 4: Toll-Free-Telephone Level of
Access and Level of Service for the First                                                                                   1999              1998
3 months of the 1999 and 1998 Filing        (a) Calls answered                                                               27.9              29.6
Seasons (in Millions)                       (b) Calls abandoned                                                               7.3               6.5
                                            (c) Subtotal—Calls that got into IRS’ system                                     35.2              36.1
                                            (d) Busy signals                                                                 16.9               3.5
                                            (e) Total call attempts                                                          52.1              39.6
                                            Level of accessa                                                                68%               91%
                                            Level of serviceb                                                               54%               75%
                                            Percent of calls that received busy signalsc                                    32%                 9%
                                            Percent of calls that got into IRS’ system but were
                                            abandonedd                                                                      21%                18%
                                            Note: Data are for January 1 through March 27, 1999, and January 1 through March 28, 1998.
                                            a
                                             Level of access is the sum of the number of calls answered plus the number of calls abandoned
                                            divided by the total call attempts--computed in this table by dividing row (c) by row (e).
                                            b
                                             Level of service is the number of calls answered divided by the total call attempts--computed in this
                                            table by dividing row (a) by row (e).
                                            c
                                                Computed in this table by dividing row (d) by row (e).
                                            d
                                                Computed in this table by dividing row (b) by row (c).
                                            Source: GAO analysis of data in IRS' Weekly Customer Service Report.


                                            The significant declines in level of access (from 91 percent to 68 percent)
                                            and level of service (from 75 percent to 54 percent) come at a time when
                                            IRS, in an attempt to improve service, extended its operating hours to 24
                                            hours a day, 7 days a week.

                                            Cognizant IRS officials have mentioned several factors that they believe
                                            contributed to the declines in telephone access and service. One factor
                                            was IRS' decision to discontinue the use of a procedure that it had used in
                                            1997 and 1998 to handle calls involving complex tax topics. Under that
                                            procedure, callers with questions in certain complex areas of the tax law,
                                            such as self-employment income and sale of a residence, were
                                            automatically connected to a voice messaging system. They were
                                            instructed to leave their name, address, telephone number, and the best
                                            time for IRS to call them back. Within 2 to 3 business days, an IRS
                                            employee knowledgeable in that area of the tax law was to return the
                                            taxpayer's call. During our review of the 1997 filing season, IRS told us

                                            25
                                             In reporting telephone data, IRS combines data on six of its toll-free telephone lines—tax law
                                            assistance, Earned Income Credit/refund inquiry, account inquiry, forms ordering, Automated
                                            Collection System, and the fraud hotline.




                                            Page 22                                                                    GAO/T-GGD/AIMD-99-140
                                    Statement




                                    that it decided to use this procedure after a study showed that calls dealing
                                    with complex topics involved 20- to 30-minute telephone conversations
                                    and that an assistor could answer about 5 simpler calls in that same
                                    amount of time.

                                    According to cognizant officials, IRS decided to discontinue the use of
                                    voice messaging for complex topics because they expected to have
                                    sufficient staff available in 1999 to allow all calls to be directed to "live"
                                    assistors. There was also some concern that IRS was not providing the
                                    best possible service when it asked taxpayers to leave a message and wait
                                    a few days for a return call. Thus, IRS started this filing season by
                                    attempting to answer all taxpayer calls with live assistors.

                                    Other contributing factors mentioned by IRS officials included

                                  • unanticipated staffing problems associated with the expansion to 24 hours-
                                    a-day, 7 days-a-week service;
                                  • start-up issues associated with IRS' new call routing system; and
                                  • the lack of reliable data on accessibility during the first weeks of the filing
                                    season.


                                    IRS has taken steps to address these contributing factors. For example,
                                    during the week of February 15, 1999, IRS reestablished the use of the
                                    messaging system for questions involving certain tax law topics. IRS'
                                    actions appear to have had a positive effect. In that regard, IRS' data show
                                    that telephone accessibility and service have improved in recent weeks.
                                    For example, IRS data on calls received during the week of March 21
                                    through 27, 1999, showed an 83 percent level of access and a 66 percent
                                    level of service during that week—significantly better than the cumulative
                                                                   26
                                    percentages shown in table 4.

The Accuracy of IRS’ Answers to     IRS data show that taxpayers are more likely to receive inaccurate
Tax Law Questions Has Also          responses to their tax law questions this year compared to last. IRS
Declined                            checks the quality of its telephone service by monitoring a sample of
                                    telephone calls. IRS’ monitoring during the period October 1, 1998,
                                    through February 28, 1999, showed that the accuracy rate had dropped 11
                                    percentage points (from 80 percent to 69 percent) compared to the same
                                    time period a year ago. Although still well behind last year, the 69 percent
                                    accuracy rate as of the end of February 1999 is better than the 66 percent
                                    rate that IRS reported as of the end of January 1999.
                                    26
                                         For the same week in 1998, IRS reported a 91 percent level of access and a 72 percent level of service.




                                    Page 23                                                                        GAO/T-GGD/AIMD-99-140
                                         Statement




                                         According to a cognizant IRS official, the decline in quality compared to
                                         1998 can be attributed to many of the same factors that contributed to the
                                         decline in telephone accessibililty. For example, the decision to stop using
                                         voice messaging required customer service representatives to handle
                                         complex topics that they were not responsible for last year.

Use of Electronic Filing                 As noted in our report on the 1998 filing season, the number of returns
                                         filed electronically increased about 28 percent between 1996 and 1997 and
Continues an Upward Trend                                                 27
                                         about 28 percent again in 1998. According to IRS data, as shown in table
                                         5, that growth is continuing, although at a reduced rate.

Table 5: Individual Income Tax Returns
Received by IRS (in Thousands)                                                                   Percent                            Percent
                                                                   1/1/97 to        1/1/98 to    change:               1/1/99 to    change:
                                         Filing type                4/04/97          4/03/98 1997 to 1998               4/02/99 1998 to 1999
                                         Paper
                                          Traditional                 45,306          42,470              -6.3           41,538               -2.2
                                          1040PCa                      4,488           3,534             -21.3            3.084              -12.7
                                          Subtotal                    49,794          46,004              -7.6           44,622               -3.0
                                         Electronic
                                          Traditionalb                13,007          16,306              25.4           20,167               23.7
                                          TeleFilec                    4,072           5,116              25.6            4,829               -5.6
                                          Subtotal                    17,079          21,422              25.4           24,996               16.7
                                         Total                        66,873          67,426               0.8           69,618                3.3
                                         a
                                          Under the Form 1040PC method of filing, a taxpayer or tax return preparer uses personal computer
                                         software that produces a paper tax return in an answer-sheet format. The Form 1040PC shows the
                                         tax return line number and the data for that line number. Only numbers for those lines on which the
                                         taxpayer has made an entry are included on the Form 1040PC.
                                         b
                                          Traditional electronic filing involves the transmission of returns over communication lines through a
                                         third party, such as a tax return preparer or electronic return transmitter, to an IRS service center.
                                         c
                                           Under TeleFile, certain taxpayers that are eligible to file a Form 1040EZ are allowed to file using a
                                         toll-free number on touch-tone telephones.
                                         Source: IRS' Management Information System for Top Level Executives.


                                         As table 5 shows, although there has been an overall increase in electronic
                                         filing, there has been a decrease in one form of electronic filing—TeleFile.
                                         It is unclear at this point why the use of TeleFile has declined. It is also
                                         unclear whether there are any particular factors that primarily account for
                                         the overall increase in electronic filing.

                                         One factor that may be contributing to the increase in electronic filing this
                                         year, but which has broader implications for future years, is IRS’ effort to
                                         find workable alternatives to paper signatures. Generally, taxpayers using
                                         the traditional form of electronic filing have to send IRS a paper signature
                                         form along with copies of their Forms W-2. The fact that electronic filing

                                         27
                                              Tax Administration: IRS’ 1998 Tax Filing Season (GAO/GGD-99-21, Dec. 31, 1998).




                                         Page 24                                                                     GAO/T-GGD/AIMD-99-140
                           Statement




                           has not been completely paperless has been cited as a major barrier to its
                           greater use. In that regard, IRS has been conducting tests this year
                           directed at making electronic filing truly paperless by allowing participants
                           to use electronic signatures and by waiving the need for participants to
                                                   28
                           send their W-2s to IRS. In one test, for example, taxpayers are to choose
                           a personal identification number to use when filing through certain tax
                           preparers. We will be following up on the results of these tests as we
                           continue our review of the filing season.

The New Child Tax Credit   The individual income tax returns being filed this year include, for the first
                           time, the opportunity for eligible taxpayers to claim a child tax credit.
Has Been the Source of     According to IRS data, of about 1.88 million error notices sent to taxpayers
Many Taxpayer Errors       as of March 12, 1999, about 202,000 (almost 11 percent) involved errors
                           with the child tax credit. Those errors generally involved taxpayers either
                           (1) miscalculating the credit or (2) not claiming the credit even though
                           they appear to be eligible.

                           With respect to the latter, taxpayers are to indicate whether a dependent is
                           a qualifying child for purposes of the child tax credit by checking a box on
                           the front of the Individual Income Tax Return (Form 1040 or Form 1040A).
                           They are then to use a worksheet included in the Form 1040/1040A
                           instructions to compute the amount of their credit, if any, and enter that
                           amount on the back of the form.

                           According to data from IRS’ Taxpayer Usage Study, which is a sample of
                           filed individual income tax returns, about 36 percent of the returns filed as
                           of March 12, 1999, included dependents that the taxpayer indicated, by a
                           checkmark on the front page, were qualifying children for the child tax
                           credit. However, the same data show that only about 24 percent of the
                           returns filed as of that date claimed the credit. Thus, about one-third of
                           the taxpayers who indicated eligibility for the credit did not claim it. This
                           apparent discrepancy may be an indicator of the complexity of the new
                           credit or may just reflect taxpayer oversight. Some of the discrepancy
                           could also be explained by the possibility that taxpayers, after completing
                           the worksheet, found that they were ineligible for the credit and, therefore,
                           did not claim it.

                           Last month, IRS changed its procedure for processing returns when
                           taxpayers do not claim a child tax credit even though they indicate on the
                           front of the return that they have one or more dependents who qualify for

                           28
                            According to a cognizant IRS official, IRS can waive the submission of W-2s because there is no
                           statutory requirement that these forms be attached to tax returns.




                           Page 25                                                                  GAO/T-GGD/AIMD-99-140
                   Statement




                   the credit. Initially, IRS’ procedure called for adjusting the taxpayer’s
                   return to include the credit if information on the return indicated that the
                   taxpayer met the adjusted gross income test and certain other eligibility
                   criteria. However, the procedure did not require verification of the
                                           29
                   qualifying child’s age.

                   IRS modified its procedure in March by instructing service centers to do
                   research to determine if the child meets the age criteria before adjusting
                   the return. If the research determines that the taxpayer qualifies for the
                   credit, the service center is to adjust the taxpayer’s return and include the
                   credit. If the research determines that the taxpayer does not qualify for
                   the credit, the service center is to process the return as filed (i.e., without
                   the credit). If the research is inconclusive, the service center is to process
                   the return as filed but notify the taxpayers that they (1) may be eligible for
                   the credit and (2) should file an amended return to claim the credit, if they
                   determine that they are eligible.

Computer Systems   Our work to date has not identified any significant disruption of IRS’
                   ability to process returns and issue refunds that might be indicative of
Performing Well    computer-related problems.

                   IRS has made major changes this year to the computer systems it uses to
                   process returns and remittances. One major change involved replacement
                   of the returns processing system at all 10 service centers and replacement
                   of the remittance processing system at 6 centers. According to an IRS
                   spokesperson for that project and processing officials at one service
                   center, the transition to the new systems has gone well, and workloads are
                   being processed as intended. A second major change involves the
                   consolidation of mainframe service center computer equipment at IRS’ two
                   computing centers in Martinsburg, WV, and Memphis, TN. So far, three
                   service centers have undergone consolidation. According to a cognizant
                   official at one of those centers, the consolidation has not adversely
                   affected the center’s ability to process returns.

                   That concludes my statement. We welcome any question that you may
                   have.




                   29
                    A qualifying child, for purposes of this credit, is a son, daughter, adopted child, grandchild, stepchild,
                   or foster child who (1) is claimed as a dependent, (2) is a U.S. citizen or resident alien, and (3) was
                   under the age of 17 at the end of the tax year.




                   Page 26                                                                       GAO/T-GGD/AIMD-99-140
Page 27   GAO/T-GGD/AIMD-99-140
Appendix I

IRS' Fiscal Year 2000 Budget Request
Compared With Proposed Fiscal Year 1999
Operating Level
Dollars in thousands
                                              FY 1999                            FY 2000                        Percent change
Budget activity                            Dollars           FTEs            Dollars             FTEs          In dollars          In FTEs

Submission Processing                  $884,000            15,384          $973,599             15,475             10.14               0.59
Telephone and Correspondence            812,651            19,650           991,456             20,874             22.00               6.23
Document Matching                        60,683             1,555            60,395              1,555             -0.47               0.00
            a
Inspection                                    0                 0                 0                  0               NA                 NA
Management Services                     563,122             6,952           615,941              6,652              9.38              -4.32
Rent and Utilities                      664,322               135           671,144                135              1.03               0.00
Subtotal: Processing, Assistance,
and Management Appropriation          $2,984,778           43,676       $3,312,535              44,691             10.98               2.32
Criminal Investigation                   367,099            3,824          374,306               3,824              1.96               0.00
Examination                            1,717,775           23,768        1,835,346              23,588              6.84              -0.76
Collection                               679,385           11,195          707,411              11,095              4.13              -0.89
Employee Plans and Exempt
Organizations                              139,845           2,055          148,999              2,109               6.55              2.63
Statistics of Income                        27,513             464           28,731                479               4.43              3.23
Chief Counsel                              232,572           2,582          242,045              2,582               4.07              0.00
Subtotal: Tax Law Enforcement
Appropriation                         $3,164,189           43,888        $3,336,838             43,677              5.46              -0.48
Operations and Maintenance             1,166,583            8,000         1,138,814              6,976             -2.38             -12.80
Year 2000                                      0                0           250,426                239               NA                 NA
Investments                               92,947              184            66,161                184            -28.82               0.00
Subtotal: Information Systems
Appropriation                         $1,259,530             8,184       $1,455,401              7,399             15.55              -9.59
Information Technology
               b
Investments                            $211,000                   0                 0                 0               NA                NA
                           c
Year 2000 Emergency Fund (outside
caps)                                  $483,300               239                 0                  0                NA                NA
Earned Income Credit (outside caps)    $143,000             1,972         $144,000               2,095               0.70              6.24
Total                                 $8,245,797           97,959        $8,248,774             97,862               0.04             -0.10
                                       a
                                        In accordance with Public Law 105-206, the IRS Inspection activity was transferred to the Treasury
                                       Inspector General for Tax Administration on January 19, 1999.
                                       b
                                        New funding for fiscal year 2000 is not needed since IRS will use carryover balances; however, IRS
                                       is requesting an advance appropriation of $325 million in fiscal year 2001 for funding of the Prime
                                       Systems Integration Services Contract.
                                       c
                                       For fiscal year 1999, IRS’ Year 2000 efforts were funded from a governmentwide Year 2000 fund that
                                       was established in the Omnibus Consolidated and Emergency Supplemental Appropriations Act for
                                       Fiscal Year 1999 (P.L. 105-277).
                                       Source: IRS’ February 1, 1999, budget estimates for fiscal year 2000.




                                       Page 28                                                                  GAO/T-GGD/AIMD-99-140
Appendix II

Comparison of IRS' Fiscal Year 1999
Proposed Operating Level and Fiscal Year
2000 Budget Request
               Dollars in thousands
                                                                       Subtotal                   Total
               Fiscal year 1999 proposed operating
               level                                                                         $8,245,797

               Decreases for fiscal year 2000
                IT investment (non-recur)                              $211,000
                Year 2000 emergency fund
                (non-recur)                                             483,300
                Absorption of mandatory non-labor
                costs                                                    50,566
               Subtotal—decreases                                      $744,866

               Increases for fiscal year 2000
                 Adjustments necessary to maintain
                 current levels                                        $299,369
                 Year 2000 conversion                                   250,426
                 Organizational modernization                           140,000
                 RRA98                                                   40,000
                 Customer service training                               17,048
                 Increase in Earned Income Tax
                 Credit compliance initiative                             1,000
               Subtotal—increases                                      $747,843
               Fiscal year 2000 budget request                                               $8,248,774
               Source: IRS' Fiscal Year 2000 Congressional Justification.




               Page 29                                                            GAO/T-GGD/AIMD-99-140
Appendix III

IRS Performance Measures


                                          Tables III.1 and III.2 show the Servicewide and program performance
                                          measures included in IRS’ February 1, 1999, budget estimates for fiscal
                                          year 2000. IRS’ performance measures will continue to evolve as IRS
                                          continues to implement its organizational modernization. Fiscal year 1999
                                          represents a transition period for IRS to introduce and baseline (gather
                                          and analyze data) the new measurement system. Performance measures
                                          with “baseline” noted in the fiscal year 1999 or fiscal year 2000 column
                                          indicate that these are new IRS measures. As shown in both tables, IRS
                                          plans to establish the baselines for most of its performance measures in
                                          fiscal year 1999.


Table III.1: Servicewide Performance Measures With Performance Report Based on Fiscal Year 1998 Data
                                                                                         FY 1998       FY 1999      FY 2000
Servicewide
performance goal          Performance measure                                              Actual    Final plan    Proposed
Service to each taxpayer Toll-free level of access                                        89.96%        80-90%       80-90%
                                                                                   a
                          Number of calls answered, includes automated (million)            113.3         120.3        120.3
                          Tax law accuracy rate for taxpayer inquiries (toll free)         93.8%           85%          85%
                                                                                                 b                         c
                          Customer satisfaction—toll free                                              Baseline
                                                                            a
                          Number of taxpayers served—walk-in (millions)                      10.1          10.0         10.0
                                                                                                 b                         c
                          Customer satisfaction—walk-in                                                Baseline
                                                                                                 b                         c
                          Customer satisfaction—field and office examination                           Baseline
                                                                                                 b                         c
                          Field collection quality                                                     Baseline
                                                                                                 b                         c
                          Field and office examination quality                                         Baseline
                                                                                                 b                         c
                          Customer satisfaction—field collection                                       Baseline
                                                                a
Service to all taxpayers Total net revenue collected (billions)                         $1,616.0      $1,725.0      $1,785.0
                                                                         a
                          Total enforcement revenue collected (billions)                    $35.2         $33.3        $33.3
                                                                          a
                          Total enforcement revenue protected (billions)                     $7.2          $7.2         $7.2
                                                                                                 b                         c
                          Alternative treatment revenue                                                Baseline
                                                                                                 b                         c
Productivity through a    Employee satisfaction (Servicewide)                                          Baseline
                                                                                                 b             b
quality work environment IRS productivity measure (placeholder)                                                     Baseline
                                          a
                                              Workload projections only.
                                          b
                                              Measure not applicable to this period.
                                          c
                                              To be determined.
                                          Source: IRS' Fiscal Year 2000 Congressional Justification.




                                          Page 30                                                      GAO/T-GGD/AIMD-99-140
                                               Appendix III




Table 2: Program Performance Measures with Performance Report Based on Fiscal Year 1998 Data
                                                                                   FY 1998           FY 1999     FY 2000
    Performance measure                                                              Actual        Final plan   Proposed
                                                         a.
1. Total number of individual refunds issued (millions)                                    87.9        92.2          94.2
                                                                                                                         c
2. Refund timeliness—paper (%)                                                                      Baseline
3. Refund timeliness—e-file(%)                                                            98.7%        98%           98%
4. Processing accuracy rate—paper filing
   Distributed Input System                                                               94.6%       94.6%        94.6%
   Code and edit                                                                          96.1%        96%           96%
5. Processing accuracy rate—e-file                                                        98.9%         99%          99%
6. Notice accuracy rate                                                                   98.4%       98.5%        98.5%
7. Number of individual returns filed through electronic returns originators (millions)     17.7        20.9         22.9

8. Number of eligible quarterly forms (Form 941) filed through TeleFile (thousands)       677.4      1,146.1      1,186.0

 9.   Number of TeleFile returns (millions)                                                 5.96         6.6       7 – 7.8
                                                         a
10.   Number of primary returns processed (millions)                                       209.8      211.9         213.9
11.   Percent of individual returns filed electronically                                  19.8%        23%           25%
12.   Percent of dollars received electronically                                          67.7%        78%           78%
                                                                                               b                         c
13.   Automated Collection System (ACS)—online accuracy                                             Baseline
                                                                                               b                         c
14.   ACS—Cycle timeliness                                                                          Baseline
                                                                                               b                         c
15.   ACS—Customer relations                                                                        Baseline
                                                                                               b                         c
16.   ACS—Overage inventory                                                                         Baseline
17.   Tax law accuracy rate for taxpayer inquires (toll free)                             93.8%         85%          85%
18.   Accounts accuracy rate for taxpayer inquires                                        87.9%       87.9%        88.5%
                                                                                               b                         c
19.   Toll free timeliness                                                                          Baseline
                                                                                               b                         c
20.   Toll free customer relations (tax law and accounts)                                           Baseline
                                                                                               b                         c
21.   Service Center examination—overage inventory                                                  Baseline
                                                                                               b                         c
22.   Service Center examination accuracy                                                           Baseline
                                                                                               b                         c
23.   ACS level of service                                                                          Baseline
                                                                                               b                         c
24.   Toll free—level of service                                                                    Baseline
                                                                                               b                         c
25.   Toll free—adherence to scheduled hours                                                        Baseline
                                                                                               b            b            b
26.   Service Center examination—volume/mix (placeholder)
                                                                                               b                         c
27.   Customer satisfaction—toll free                                                               Baseline
                                                                                               b                         c
28.   Customer satisfaction—ACS                                                                     Baseline
                                                                                               b                         c
29.   Customer satisfaction—Service Center examination                                              Baseline
                                                                                               b                         c
30.   Employee satisfaction—toll free                                                               Baseline
                                                                                               b                         c
31.   Employee satisfaction—ACS                                                                     Baseline
                                                                                               b                         c
32.   Employee satisfaction—Service Center examination                                              Baseline
33.   Taxpayer Advocate average processing time (days)                                     37.8        37.8          37.8

34.   Taxpayer Advocate quality customer service rate                                      80.8        81.3          81.3
35.   Currency of Taxpayer Advocate inventory (days)                                       91.3        91.8          91.8
                                                                                               b                         c
36.   Field and office examination—volume/mix (placeholder)                                         Baseline
                                                                                               b                         c
37.   Field and office examination quality                                                          Baseline
                                                                                               b                         c
38.   Percent of field and office examination cases overage                                         Baseline
                                                                                               b                         c
39.   Customer satisfaction—field/office examination                                                Baseline




                                               Page 31                                              GAO/T-GGD/AIMD-99-140
                                                 Appendix III




                                                                                                       FY 1998        FY 1999     FY 2000
      Performance measure                                                                               Actual      Final plan   Proposed
                                                                                                                b                        c
40.   Employee satisfaction—field/office examination                                                                  Baseline
                                                                                                                b                        c
41.   Appeals customer satisfaction                                                                                   Baseline
                                                                                                                b                        c
42.   Appeals employee satisfaction                                                                                   Baseline
43.   Appeals nondocketed cycle time (days)                                                                   210          210        210
                                                                                                                b                        c
44.   Field collection—volume/mix                                                                                     Baseline
                                                                                                                b                        c
45.   Field collection quality                                                                                        Baseline
                                                                                                                b                        c
46.   Percentage of field collection cases overage                                                                    Baseline
47.   Percentage of offers-in-compromise processed within 6 months                                       60.5%          59.3%       59.3%
                                                                                                                b                        c
48.   Customer satisfaction—field collection                                                                          Baseline
                                                                                                                b                        c
49.   Employee satisfaction—field collection                                                                          Baseline
                                                                                                                                         c
50.   Employee Plans (EP) determination letter timeliness (days)                                              118          145
51.   Exempt Organizations (EO ) determination letter timeliness (days)                                        85           85         81
52.   EP examination timeliness(days)                                                                         193          200        230
53.   EO examination timeliness (days)                                                                        251          259        294
                                                                                                                b                        c
54.   EO determination customer satisfaction                                                                          Baseline
                                                                                                                b                        c
55.   EP determination customer satisfaction                                                                          Baseline
                                                                                                                b                        c
56.   EO examination customers satisfaction                                                                           Baseline
                                                                                                                b                        c
57.   EP examination customer satisfaction                                                                            Baseline
                                                                                                                b                        c
58.   Employee satisfaction–EP/EO                                                                                     Baseline
59.   Percent of Statistics of Income projects delivered on time                                          100%            90%         90%
60.   Quality customer service rate                                                                        98%            90%         90%
                                                                                                                b                        c
61.   Guidance and assistance—volume/mix                                                                              Baseline
                                                                                                                b                        c
62.   Litigation case—volume/mix                                                                                      Baseline
                                                                                                                b            b
63.   Chief Counsel quality                                                                                                       Baseline
                                                                                                                b            b
64.   Chief Counsel customer satisfaction                                                                                         Baseline
                                                                                                                b            b
65.   Chief Counsel employee satisfaction                                                                                         Baseline
66.   Master file weekend update completion times                                                        66.0%         85.6%        97.0%
67.   Corporate file on-line availability to front line personnel                                        99.7%         99.0%        99.0%
68.   Integrated Data Retrieval System real time availability to front line personnel                    99.4%         99.0%        99.0%
                                                 a
                                                     Workload projections only.
                                                 b
                                                     Measure not applicable to this period.
                                                 c
                                                     To be determined
                                                 Source: IRS' Fiscal Year 2000 Congressional Justification.




                                                 Page 32                                                             GAO/T-GGD/AIMD-99-140
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