oversight

IRS 2013 Budget: Continuing to Improve Information on Program Costs and Results Could Aid in Resource Decision Making

Published by the Government Accountability Office on 2012-06-08.

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

             United States Government Accountability Office

GAO          Report to Congressional Committees




June 2012
             IRS 2013 BUDGET

             Continuing to Improve
             Information on
             Program Costs and
             Results Could Aid in
             Resource Decision
             Making




GAO-12-603
Contents


Letter                                                                                    1
               Conclusions                                                                4
               Recommendations for Executive Action                                       5
               Agency Comments and Our Evaluation                                         5

Appendix I     Briefing Slides                                                            7



Appendix II    Comments from the Internal Revenue Service                               47



Appendix III   Reliability of Patient Protection and Affordable Care Act Cost Estimate 48



Appendix IV    Description of the Internal Revenue Service’s Major Information
               Technology Investments                                                   60



Appendix V     Major Information Technology Investments with Significant Cost and
               Schedule Variances                                                       62



Appendix VI    GAO Products with Open Matters for Congress and Recommendations to
               the IRS Regarding Tax Administration                             68



Appendix VII   GAO Contact and Staff Acknowledgments                                    71



Tables
               Table 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns
                        with Best Practices Outlined in the GAO Cost Guide              53
               Table 2: The Internal Revenue Service’s 20 Major Information
                        Technology Investments                                          60
               Table 3: Cost and Schedule Performance Information for
                        Affordable Care Act Administration                              62



               Page i                                             GAO-12-603 IRS 2013 Budget
          Table 4: Cost and Schedule Performance Information for Current
                   Customer Account Data Engine                                    63
          Table 5: Cost and Schedule Performance Information for
                   Integrated Customer Communication Environment                   64
          Table 6: Cost and Schedule Performance Information for
                   Integrated Submission and Remittance Processing System          65
          Table 7: Cost and Schedule Performance Information for IRS Main
                   Frames and Servers Services and Support                         66
          Table 8: Cost and Schedule Performance Information for
                   Modernized e-File                                               67
          Table 9: List of Open Matters for Congress and Recommendations
                   to IRS That Could Result In Potential Savings or Increased
                   Revenues                                                        68


Figures
          Figure 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns
                   with the Best Practices for Comprehensiveness                   49
          Figure 2: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns
                   with the Best Practices for Being Well Documented               50
          Figure 3: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns
                   with the Best Practices for Accuracy                            51
          Figure 4: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns
                   with the Best Practices for Credibility                         52


          Abbreviations

          ACA         Affordable Care Act
          AMS         Account Management Services
          AUR         Automated Underreporter Program
          BSM         Business Systems Modernization
          CADE        Customer Account Data Engine
          CFO         Chief Financial Officer
          CI          Criminal Investigation
          CIO         Chief Information Officer
          e-SVS       e-Services
          EFDS        Electronic Fraud Detection System
          EPO         Estimation Program Office
          EUSS        IRS End User Systems and Services
          EVM         earned value management
          FATCA       Foreign Account Tax Compliance Act


          Page ii                                            GAO-12-603 IRS 2013 Budget
FTE           full-time equivalent
HHS           Department of Health and Human Services
HIRIF         Health Insurance Reform Implementation Fund
HITCA         Health Insurance Tax Credit Administration
IMF           Individual Master File
ICCE          Integrated Customer Communication Environment
IDRS          Integrated Data Retrieval System
IFS           Integrated Financial System
IRDM          Information Reporting and Document Matching
IRS           Internal Revenue Service
ISRP          Integrated Submission and Remittance Processing
IT            information technology
MeF           Modernized e-File
MISSTU        Modernized Infrastructure Solaris 10 & Supporting
              Technologies Upgrade
MITS          Modernization and Information Technology Services
MSSS          IRS Main Frames and Servers Services and Support
OMB           Office of Management and Budget
PPACA         Patient Protection and Affordable Care Act
ROI           return on investment
RRP           Return Review Program
SAN           Storage Area Network
SCRIPS        Service Center Recognition/Image Processing System
Treasury      Department of the Treasury
TSS           IRS Telecommunications Systems and Support
WBS           work breakdown structure




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Page iii                                                       GAO-12-603 IRS 2013 Budget
United States Government Accountability Office
Washington, DC 20548




                                   June 8, 2012

                                   The Honorable Richard J. Durbin
                                   Chairman
                                   The Honorable Jerry Moran
                                   Ranking Member
                                   Subcommittee on Financial Services and General Government
                                   Committee on Appropriations
                                   United States Senate

                                   The Honorable Charles W. Boustany, Jr.
                                   Chairman
                                   The Honorable John Lewis
                                   Ranking Member
                                   Subcommittee on Oversight
                                   Committee on Ways and Means
                                   United States House of Representatives

                                   This letter transmits several briefings we provided between February 27,
                                   2012 and May 16, 2012, as well as subsequent comments from the
                                   Internal Revenue Service (IRS). See appendix I for the final, updated
                                   briefing.

                                   The President requested $12.8 billion for IRS for fiscal year 2013. This is
                                   an 8 percent increase over the enacted appropriation for fiscal year 2012,
                                   and follows a 2.5 percent decrease between fiscal year 2011 and fiscal
                                   year 2012. Because of the size of IRS’s budget and the importance of its
                                   service and compliance programs for all taxpayers, you asked us to
                                   review the fiscal year 2013 budget justification for IRS as well as how it
                                   absorbed the prior year’s reductions. Based on discussions with your
                                   offices, our objectives were to: (1) describe how IRS managed funding
                                   reductions in fiscal year 2012; (2) describe the fiscal year 2013 budget
                                   request for IRS and budget and staffing trends from fiscal year 2009
                                   through fiscal year 2013; (3) evaluate any new enforcement and
                                   infrastructure initiatives in the fiscal year 2013 budget request, including
                                   whether return on investment (ROI) estimates are provided; (4) evaluate
                                   the reliability of IRS’s cost estimate for implementing its responsibilities




                                   Page 1                                              GAO-12-603 IRS 2013 Budget
under the Patient Protection and Affordable Care Act (PPACA); 1 (5)
evaluate the amount requested for hiring additional staff in fiscal year
2013; (6) evaluate the performance of IRS’s major information technology
(IT) investments; (7) list any analyses we have done related to legislative
proposals included in the budget request for IRS; and (8) describe IRS’s
progress implementing our prior budget presentation recommendations
and list our open matters for Congress and recommendations to IRS
regarding tax administration with potential budget savings or revenue
increases.

To conduct this work, we addressed the first three objectives by reviewing
IRS’s plans to manage budget reductions and examining trends in
selected performance measures since 2007, identifying prior GAO work
that could increase efficiencies, and comparing and analyzing budget
documentation from fiscal year 2008 through fiscal year 2013. We
compared the reliability of the PPACA cost estimate with best practices
outlined in the GAO Cost Estimating and Assessment Guide 2 (Cost
Guide) using documents, such as work breakdown structures (WBS), and
interviewing IRS PPACA officials. We reviewed cost estimates for PPACA
implementation based on your interest and because it represented the
largest requested increase in the budget proposal. To evaluate the
amount requested for hiring additional staff in fiscal year 2013, we
compared Office of Management and Budget (OMB) Circular A-11
guidance with IRS’s budgeting practices for funding the hiring of new
staff. We reviewed IRS’s recent hiring patterns and calculated the
percentage of staff hired in each quarter for new initiatives in fiscal year
2009 and fiscal year 2010. We used a $100,000/full-time equivalent
(FTE) 3 value for salary and benefits, which IRS officials told us they
commonly use as an approximate cost per FTE, and compared it with the
budget request to determine differences. We reviewed reported cost and


1
 IRS is one of several agencies charged with implementing PPACA, legislation aimed at
reforming the private insurance market and expanding health coverage to the uninsured.
IRS is responsible for implementing PPACA provisions relating to, among other things,
new taxes, tax credits, and information reporting requirements. Pub. L. No. 111-148, 124
Stat.119 (March 23, 2010), as amended by the Health Care and Education Reconciliation
Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).
2
 GAO, Cost Estimating and Assessment Guide: Best Practices for Developing and
Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009).
3
 A FTE is a measure of staff hours equal to those of an employee who works 2,080 hours
per year, or 40 hours per week for 52 weeks.




Page 2                                                       GAO-12-603 IRS 2013 Budget
schedule information and Chief Information Officer (CIO) assessments for
all IRS major IT investments and interviewed officials in the Modernization
and Information Technology Services (MITS) office. We also reviewed
legislative proposals in the budget justification and identified prior, related
GAO work. Finally, we obtained information on prior-year budget
recommendations from various IRS officials and reviewed relevant
documentation, including the fiscal year 2013 Congressional Budget
Justification, to determine which recommendations were implemented
and we relied on prior work and examined open matters and
recommendations with a potential to increase savings or revenues. For
each objective, we interviewed IRS officials in the offices of the Chief
Financial Officer (CFO) and Corporate Budgeting. We conducted our
work in Washington, D.C., where key IRS officials involved with the
budget and IT systems are located.

We conducted this performance audit from November 2011 to June 2012
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. We spoke with IRS officials
and reviewed data collection procedures and determined that the data
used in this report were sufficiently reliable for our purposes.

The results of our work show:

•   IRS absorbed the 2.5 percent or $305 million fiscal year 2012
    reduction by decreasing FTEs and other costs, primarily in the
    Enforcement and Operations Support appropriations. Several of our
    recent reports show that other opportunities exist to increase
    efficiencies through, for example, automating some services,
    leveraging paid tax return preparers, and conducting more compliance
    checks before issuing refunds.
•   IRS’s fiscal year 2013 budget request represents a $944.5 million (8.0
    percent) and about a 4,500 FTEs (5.0 percent) increase over fiscal
    year 2012.
•   Seven of the 12 proposed new program initiatives ($603.1 million) are
    supported by ROI estimates; the others ($303.9 million) are not
    supported by ROI information or, for the 2 we reviewed, other similar
    economic assessments, such as cost effectiveness analyses.
•   IRS’s PPACA cost estimate partially meets best practices for
    reliability, but it has not been updated since October 2010.



Page 3                                                GAO-12-603 IRS 2013 Budget
              •   IRS budgets for hiring new staff based on the new staff being on-
                  board for the full fiscal year. But, in recent years, IRS hired most new
                  staff late in the fiscal year, which could have resulted in funding being
                  used for other purposes that are not described or substantiated in the
                  budget justification.
              •   Fourteen of 20 major IT investments were within 10 percent of cost
                  and schedule estimates between October 2011 and March 2012, but
                  we could not determine whether these investments delivered planned
                  functionality because IRS does not have a quantitative measure of
                  scope for major IT investments.
              •   We have conducted analyses related to 6 of the 22 legislative
                  proposals included in the budget request for IRS.
              •   IRS at least partially implemented 5 of our 9 prior recommendations
                  intended to improve information presented in the budget request; in
                  addition, we have 106 other matters for Congress or
                  recommendations to IRS regarding tax administration that remain
                  open and could result in potential financial benefits, either budget
                  savings or increases in tax revenue.

              We have identified several areas where budget decision makers lack
Conclusions   information that would be helpful in making decisions about resource
              trade-offs at IRS.

              •   Unlike most enforcement initiatives that IRS now justifies with ROI
                  estimates, non-enforcement investment initiatives are not justified with
                  similar economic analyses, such as cost-effectiveness analyses.
                  When comparisons of alternative investments for accomplishing a
                  goal do not consider costs, budget decision makers cannot be
                  assured that alternatives were fully evaluated and that the best
                  alternative was selected.
              •   Without a timely, updated cost estimate for PPACA, budget decision
                  makers will not know the fraction of the multi-year effort being funded
                  in fiscal year 2013 or the subsequent remaining costs.
              •   Because the budget request for hiring new staff is not based on
                  expected hiring dates, but instead assumes hiring will occur at the
                  beginning of the fiscal year, some funds will be available for other
                  uses, which are not described or substantiated in the budget request.
              •   Although IRS tracks the schedule and cost performance of IT
                  investments, it does not have a quantitative measure to determine
                  whether it is delivering planned functionality. Without this measure,
                  budget decision makers lack complete information about IRS’s
                  performance in managing IT investment projects.




              Page 4                                               GAO-12-603 IRS 2013 Budget
                      To continue to improve information on program cost and results that could
Recommendations for   aid in resource decision making, we recommend that the Commissioner
Executive Action      of Internal Revenue

                      •   ensure cost-effectiveness analyses are conducted for future
                          significant investments when there are alternative approaches for
                          achieving a given benefit, such as for any new significant PPACA
                          projects;
                      •   ensure that an updated PPACA cost estimate is completed by
                          September 2012 in accordance with best practices in the GAO Cost
                          Guide;
                      •   prepare funding requests for new staff based on estimated hiring
                          dates; and
                      •   develop a quantitative measure of scope, at a minimum for its major
                          IT investments, to have complete information on the performance of
                          these investments.

                      We provided a draft of this report to the Commissioner of Internal
Agency Comments       Revenue for his review and comment. The CFO provided written
and Our Evaluation    comments as an email attachment, which is reprinted in appendix II. IRS
                      also provided us with technical comments, which we incorporated into the
                      report as appropriate.

                      In response to our draft report, the CFO stated that IRS agreed with three
                      of our four recommendations.

                          •    For the two recommendations regarding PPACA, IRS agreed with
                               them, but stated our report did not acknowledge that the majority
                               of the funding is to support ongoing efforts and for staff already on
                               board in fiscal year 2012. On the contrary, our report describes in
                               detail (in the background, in the section on fiscal year 2012
                               funding reductions, and in the section on fiscal year 2013 budget
                               data and trends) the funding IRS received from the Health
                               Insurance Reform Implementation Fund in fiscal years 2010, 2011
                               and 2012, including FTEs funded in prior years.

                          •    IRS agreed with our recommendation to develop a quantitative
                               measure of scope, but the CFO stated that IRS has other methods
                               in place to document delivered functionality of a project throughout
                               the life-cycle. We agree that the methods identified address
                               project functionality, but they do not provide a quantitative
                               measure of performance.



                      Page 5                                                GAO-12-603 IRS 2013 Budget
    •    IRS did not agree with our recommendation to prepare funding
         requests for new staff based on estimated hiring dates. The CFO
         stated that IRS is committed to transparency in spending though
         the submission of the annual Operating Plan and requests to
         reprogram funds as a result of the late enactment of the budget or
         delayed hiring of new staff. Our report emphasizes transparency
         in the budget request and discusses the issues raised in the
         CFO’s letter. Transparency in the budget request is critical for
         Congressional oversight and decision making. IRS’s current
         approach for budgeting for hiring new staff could result in
         substantial funding—about $300 million in fiscal year 2013— that
         could be used for other purposes that are not substantiated or
         described in the budget justification. We therefore believe our
         recommendation remains valid.


We plan to send copies of this report to the Chairman and Ranking
Members of other Senate and House committees and subcommittees that
have appropriation, authorization, and oversight responsibilities for IRS.
We are also sending copies to the Commissioner of Internal Revenue, the
Secretary of the Treasury, the Chairman of the IRS Oversight Board, and
the Director of the Office of Management and Budget. Copies are also
available at no charge on the GAO web site at http://www.gao.gov.

If you or your staffs have any questions or wish to discuss the material in
this report further, please contact me at (202) 512-9110 or
whitej@gao.gov. Contact points for our offices of Congressional Relations
and Public Affairs may be found on the last page of this report. GAO staff
members who made major contributions to this report are listed in
appendix VII.




James R. White
Director, Tax Issues
Strategic Issues




Page 6                                              GAO-12-603 IRS 2013 Budget
Appendix I: Briefing Slides
                  Appendix I: Briefing Slides




            IRS 2013 Budget:
   Continuing to Improve Information on
  Program Costs and Results Could Aid in
        Resource Decision Making
 Prepared for the Subcommittee on Financial Services
       and General Government, Committee on
      Appropriations, U.S. Senate (May 15, 2012)
                       and the
 Subcommittee on Oversight, Committee on Ways and
 Means, U.S. House of Representatives (May 16, 2012)
                Updated (June 6, 2012)




                  Page 7                        GAO-12-603 IRS 2013 Budget
                                                            Appendix I: Briefing Slides




Introduction

• The President requested $12.8 billion for the Internal Revenue Service
  (IRS) for fiscal year 2013. This is an 8 percent increase over the
  enacted appropriation for fiscal year 2012, and follows a 2.5 percent
  decrease between fiscal year 2011 and fiscal year 2012.

• Because of the size of IRS’s budget and the importance of its service
  and compliance programs for all taxpayers, you asked us to review the
  fiscal year 2013 budget justification for IRS as well as how it absorbed
  fiscal year 2012 reductions. Other special areas of interest include an
  evaluation of the cost estimates for the Patient Protection and
  Affordable Care Act (PPACA)1 initiatives and budgeting practices for
  funding the hiring of new staff.

1IRS  is one of several agencies charged with implementing PPACA, legislation aimed at reforming the private insurance market and expanding health coverage to the uninsured. IRS
is responsible for implementing PPACA provisions relating to, among other things, new taxes, tax credits, and information reporting requirements. Pub. L. No. 111-148, 124 Stat.119
(Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).

                                                                                                                                                                        Page 2




                                                            Page 8                                                                                        GAO-12-603 IRS 2013 Budget
                              Appendix I: Briefing Slides




Objectives

Based on your request, our objectives were to:
(1) describe how IRS managed funding reductions in fiscal year 2012;
(2) describe the fiscal year 2013 budget request for IRS and budget and staffing trends
    from fiscal year 2009 through fiscal year 2013;
(3) evaluate any new enforcement and infrastructure initiatives in the fiscal year 2013
    budget request, including whether return on investment (ROI) estimates are
    provided;
(4) evaluate the reliability of IRS’s cost estimate for implementing its responsibilities
    under the PPACA;
(5) evaluate the amount requested for hiring additional staff in fiscal year 2013;
(6) evaluate the performance of IRS’s major information technology (IT) investments;
(7) list any analyses we have done related to legislative proposals included in the budget
    request for IRS; and
(8) describe IRS’s progress implementing our prior budget presentation
    recommendations and list our open matters for Congress and recommendations to
    IRS regarding tax administration with potential budget savings or revenue increases.

                                                                                     Page 3




                              Page 9                                         GAO-12-603 IRS 2013 Budget
                                                             Appendix I: Briefing Slides




Scope and Methodology

•      To conduct our review, we
         • addressed the first three objectives by reviewing IRS’s plans to manage budget reductions
            and examining trends in selected performance measures since 2007; identifying prior GAO
            work that could increase efficiencies; and comparing and analyzing budget documentation
            from fiscal year 2008 through fiscal year 2013;
         • compared the reliability of the cost estimates for PPACA with best practices outlined in the
            GAO Cost Guide1 using documents, such as work breakdown structures, and interviewing
            IRS PPACA officials; we reviewed cost estimates for PPACA implementation based on your
            interest and because it represented the largest requested increase in the budget request;
         • compared Office of Management and Budget (OMB) Circular A-11 guidance with IRS’s
            budgeting practices for funding the hiring of new staff; reviewed recent hiring patterns and
            calculated the percent of staff hired in each quarter for new initiatives in fiscal year 2009 and
            fiscal year 2010; we used a $100,000/full-time equivalent2 (FTE) value for salary and benefits,
            which IRS officials told us they commonly use as an approximate cost per FTE, and
            compared with the budget request to determine differences;
         • reviewed reported cost and schedule information and Department of the Treasury (Treasury)
            Chief Information Officer (CIO) assessments for all IRS major IT systems and interviewed
            officials in the Modernization and Information Technology Services (MITS) office;3



1See   GAO, Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009).

2A FTE is a measure of staff hours equal to those of an employee who works 2,080 hours per year, or 40 hours per week for 52 weeks.
3 Among other IT responsibilities, MITS has primary responsibility for managing and delivering IRS’s Business Systems Modernization program.
                                                                                                                                                                   Page 4




                                                             Page 10                                                                                 GAO-12-603 IRS 2013 Budget
                                Appendix I: Briefing Slides




Scope and Methodology (continued)

     •   reviewed legislative proposals in the fiscal year 2013 Congressional Budget
         Justification and identified our prior related work; and
     •   obtained information on the status of prior year budget recommendations from
         various IRS officials and reviewed documentation, including the fiscal year 2013
         Congressional Budget Justification, to determine which recommendations were
         implemented; and we relied on prior work and examined open matters and
         recommendations with a potential to increase savings or revenues.

•   For each objective we interviewed officials in the IRS offices of Chief Financial Officer
    (CFO) and Corporate Budgeting. We conducted our work in Washington, D.C., where
    key IRS officials involved with the budget and IT systems are located.
•   We conducted this performance audit from November 2011 to June 2012 in accordance
    with generally accepted government auditing standards. Those standards require that
    we plan and perform the audit to obtain sufficient, appropriate evidence to provide a
    reasonable basis for our findings and conclusions based on our audit objectives. We
    believe that the evidence obtained provides a reasonable basis for our findings and
    conclusions based on our audit objectives. We spoke with IRS officials and reviewed
    data collection procedures and determined that the data presented in this report were
    sufficiently reliable for our purposes.
                                                                                          Page 5




                                Page 11                                         GAO-12-603 IRS 2013 Budget
                                        Appendix I: Briefing Slides




Results in Brief

•   IRS absorbed the 2.5 percent or $305 million fiscal year 2012 reduction by decreasing FTEs and other costs,
    primarily in the Enforcement and Operations Support appropriations, but opportunities to increase efficiencies
    and more strategically manage operations exist.
•   IRS’s fiscal year 2013 budget request represents a $944.5 million (8.0 percent) and about a 4,500 FTE (5.0
    percent) increase over fiscal year 2012.
•   Seven of the 12 proposed new program initiatives ($603.1 million) are supported by ROI estimates; the
    others ($303.9 million) are not supported by ROI information or, for the 2 we reviewed, other similar
    economic assessments, such as cost-effectiveness analyses.
•   IRS’s PPACA cost estimate partially meets best practices for reliability, but it has not been updated since
    October 2010.
•   IRS budgets for hiring new staff based on them being on-board for the full fiscal year. But, in recent years, it
    hired most new staff late in the fiscal year, which could have resulted in funding being used for other
    purposes that are not described or substantiated in the budget justification.
•   Fourteen of 20 major IT investments were within 10 percent of cost and schedule estimates between October
    2011 and March 2012, but we could not determine whether these investments delivered planned functionality
    because IRS does not have a quantitative measure of scope for major IT investments.
•   We have conducted analyses related to 6 of the 22 legislative proposals included in the budget request for
    IRS.
•   IRS at least partially implemented 5 of our 9 prior recommendations intended to improve information
    presented in the budget request; in addition, we have 106 other matters for Congress or recommendations to
    IRS regarding tax administration that remain open and could result in potential financial benefits, either
    budget savings or increases in tax revenue.

                                                                                                             Page 6




                                        Page 12                                                     GAO-12-603 IRS 2013 Budget
                                             Appendix I: Briefing Slides




Background
IRS’s Budget Presentation

• IRS’s budget                 Figure 1: Three Levels of IRS’s Budget Presentation
presentation has three
levels—appropriations,
budget activities, and
program activities.

• Requested funding
increases for new
program initiatives, such
as implementing tax
legislative changes, may
be included within
multiple appropriations or
budget activities. The
budget justification does
not link new initiatives to
program activities.



                              aThe   BSM budget activity does not include any specific program activities.

                                                                                                                     Page 7




                                             Page 13                                                         GAO-12-603 IRS 2013 Budget
                                              Appendix I: Briefing Slides




Background
Budget Process Timeline

• IRS’s budget process begins about 18 months prior to the final submission and is guided by the
IRS Commissioner, Deputy Commissioners, CFO, and Corporate Budget office.


Figure 2: Timeline of IRS’s Fiscal Year 2013 Budget Process




                                                                                               Page 8




                                              Page 14                                   GAO-12-603 IRS 2013 Budget
                                                                 Appendix I: Briefing Slides




Background
IRS Funding for PPACA

• Congress passed PPACA1 in March 2010 to reform the private insurance
  market and expand health coverage to the uninsured. IRS is responsible for
  implementing new provisions including new taxes, tax credits, and information
  reporting requirements.

• Subsequently, Congress established the Health Insurance Reform
  Implementation Fund (HIRIF)2 within the Department of Health and Human
  Services (HHS) for federal administrative expenses in carrying out PPACA.

• Congress appropriated $1 billion to the HIRIF. IRS was one of the agencies
  eligible to use this appropriation to fund PPACA implementation.

                    • HHS provided $188.9 million/609 FTEs to IRS from HIRIF in fiscal year
                      2010 ($20.7 million/33 FTEs) and fiscal year 2011 ($168.2 million/576
                      FTEs).
1 Pub.   L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010).
2   Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010).          Page 9




                                                                 Page 15                                         GAO-12-603 IRS 2013 Budget
                                                            Appendix I: Briefing Slides




Fiscal Year 2012 Funding Reductions
Fiscal Year 2012 Enacted IRS Appropriations Reduced
by $305 Million (2.5 Percent) from Fiscal Year 2011
 •Most fiscal year 2012 reductions (in terms of dollars) were in the Enforcement and Operations Support
 appropriations.
 •IRS requested $473.4 million (1,269 FTEs) for PPACA in fiscal year 2012, but it was not funded.
 Subsequently, IRS received $135.4 million from HIRIF through March 31, 2012. Officials anticipate
 requesting an additional $196.8 million, totaling $332.2 million (803 FTEs) from HIRIF for fiscal year 2012.

Table 1: Funding Reductions in IRS’s Appropriations between Fiscal Year 2011 and Fiscal Year 2012 (dollars in millions)
                                                                                                                                                     Dollar change
                                                                                                                                                   (percent change)
                                                                                   Fiscal year 2011               Fiscal year 2012             fiscal year 2011 to fiscal
                                                                                       enacted                        enacted                          year 2012
Enforcement                                                                                          $5,493                      $5,299                        -$194 (-3.5%)
Operations support                                                                                     4,057                       3,947                            -109 (-2.7)
Taxpayer services                                                                                      2,293                       2,240                             -54 (-2.3)
BSM                                                                                                      263                         330                             67 (25.4)
Health Insurance Tax Credit Administration (HITCA)                                                         15                          0a                         -15 (-100.0)
Total appropriated resources                                                                       $12,122                      $11,817                        -$305 (-2.5%)

Source: Fiscal year 2013 Congressional Budget Justification for IRS.
Note: Numbers may not add due to rounding.
aIn fiscal year 2012, administrative resources for HITCA were moved to the Taxpayer Services appropriation under the Consolidated Appropriations Act, 2012 (Pub. L. No. 112-74).




                                                                                                                                                                      Page 10




                                                            Page 16                                                                                       GAO-12-603 IRS 2013 Budget
                                                              Appendix I: Briefing Slides




Fiscal Year 2012 Funding Reductions
IRS Decreased FTEs and Other Costs, but Did Not Fully
Implement GAO’s Recommendation to Systematically Re-
Examine Base Operations
•       To manage the reductions to its appropriations, IRS:
         • Decreased FTEs by at least 3.4 percent1 from fiscal year 2011 through use of
            attrition, a hiring freeze, and targeted buyouts of more than 900 staff.
              • After receiving HIRIF funding for staffing (227 FTEs), the net decrease in FTEs
                 was 3.1 percent.
         • Reduced other costs through cuts to travel, training, consulting services, IT
            investments, and increased use of telework and video conferencing.

•       IRS officials said they examined base operations at a high level, but did not provide us
        documentation of their analysis. IRS’s officials also said that spending reductions were
        focused on minimizing the impact on services to taxpayers and operations.
          • We previously recommended IRS expand efforts to systematically identify savings
             and efficiencies as part of its budget development process.2
          • IRS may be missing opportunities to realize savings and efficiencies by not fully
             reviewing base operations.



                                                                                                                                                              Page 11
    1Reduction  in FTEs calculated from fiscal year 2011 actual and fiscal year 2012 enacted FTE levels.
    2GAO,   IRS Budget 2012: Extending Systematic Reviews of Spending Could Identify More Savings Over Time, GAO-11-547 (Washington, D.C.: Apr. 11, 2011).




                                                              Page 17                                                                                GAO-12-603 IRS 2013 Budget
                                                            Appendix I: Briefing Slides




Fiscal Year 2012 Funding Reductions
Selected Measures Show Declines in Performance or
Planned Targets for Some Taxpayer Service and
Enforcement Activities Since Fiscal Year 2007
Table 2: Selected Taxpayer Service and Enforcement Measures for Fiscal Year 2007 through Fiscal Year 2013

                                                                                                                                                     Fiscal year        Fiscal year
                                                         Fiscal year        Fiscal year       Fiscal year       Fiscal year        Fiscal year          2012               2013
                                                             2007               2008              2009              2010               2011           (planned           (planned
Performance measure (in percent)                           (actual)           (actual)          (actual)          (actual)           (actual)          target)            target)
Assistor calls –
         Level of servicea                                         82.1              52.8              70.0              74.0               70.1                 61.0         63.0
         Tax law accuracyb                                         91.2              91.2              92.9              92.7               93.4                 92.7         92.7
         Account accuracyb                                         93.4              93.7              94.9              95.7               96.0                 95.0         95.0
Examination coverage—individualc                                     1.0               1.0               1.0               1.1                1.1                 1.0           1.0
Examination coverage—businessc
(assets > $10 million)                                               6.8               6.1               5.6               5.7                6.2                 5.6           5.4
Collection coveraged                                               54.0              55.2              54.2              50.1               50.0                 47.8         46.8
Source: Fiscal Year 2013 Congressional Budget Justification for IRS.
aThe number of toll-free callers that speak to live IRS assistors divided by the total number of attempted calls.

bAccuracy measures show how often customers receives the correct answer/solution to their inquiry from a live IRS assistor.

cExamination coverage is the number of tax returns examined and closed during the current fiscal year divided by the number of returns for the preceding year.

dCollection coverage measures the volume of collection work completed compared to the volume of collection work available.




                                                                                                                                                                        Page 12




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Fiscal Year 2012 Funding Reductions
IRS’s Telephone Level of Service in Fiscal Year
2012 Has Decreased
• As of mid-April 2012, the telephone level of service1 was 68.3 percent,
  down 6.3 percentage points compared to the same period last year.
   • At the enacted funding level, the planned target for fiscal year 2012
      is 61 percent, down from its target of 82 percent for fiscal year
      2008.

• Hours assistors are available to answer calls decreased 20 percent from
  fiscal year 2011, from 15 hours to 12 hours per day. Average wait times
  to talk with an assistor during the same period increased from 9.9
  minutes to 15.8 minutes.

• Abandoned, busy, and disconnected calls are up more than 26 percent
  during the same period in 2011 and are up almost 67 percent from the
  same period in 2008.
 1Level   of service is the number of toll-free callers that speak to live IRS assistors divided by the total number of attempted calls.
                                                                                                                                                    Page 13




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Fiscal Year 2012 Funding Reductions
New Tax Laws Increase IRS’s
Responsibilities
•      Several new laws could substantially increase IRS’s workload beginning in 2012; for
       example:

        •        In fiscal year 2011, IRS received 1.8 billion information returns.1 Three new laws
                 require (1) brokers to report the adjusted cost basis for certain securities and identify
                 whether a gain or loss is short or long-term,2 (2) merchants to report the gross
                 amount of income from payment card or third-party payment network transactions,3
                 and (3) foreign banks to provide information on taxpayer accounts via the Foreign
                 Account Tax Compliance Act (FATCA).4 IRS’s fiscal year 2012 and fiscal year 2013
                 information return projections increase to 2.5 billion and 2.6 billion, respectively.
        •        In addition to processing increased information reports, IRS will also have other
                 responsibilities related to FATCA, such as identifying filers not complying with
                 FATCA requirements and imposing tax penalties when necessary.
        •        For PPACA, IRS has several new responsibilities, such as administering new fees
                 on drug manufacturers and health insurers, processing newly required reports, and
                 reviewing the community benefit activities of tax-exempt hospitals, which they need
                 to prepare for and implement over the next several years.
    1Information  returns are tax documents third parties are required to file to IRS that report certain transactions, such as interest earned from a bank account.
    2Energy    Improvement and Extension Act of 2008, Pub. L. No. 110-343, div. B, § 403, 122 Stat. 3765, 3854-3860 (Oct. 3, 2008).


                                                                                                                                                                          Page 14
    3Housing    Assistance Tax Act of 2008, Pub. L. No. 110-289, div. C, § 3091, 122 Stat. 2654, 2908-2911 (July 30, 2008).
    4Hiring   Incentives to Restore Employment Act, Pub. L. No. 111-147, title V, 124 Stat. 71, 97-117 (Mar. 18, 2010).




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                           Appendix I: Briefing Slides




Fiscal Year 2012 Funding Reductions
Opportunities Exist to Increase Efficiencies and
More Strategically Manage Operations
• In recent reports, we highlighted opportunities for IRS to modify its current
  operations to improve taxpayer services and enforcement programs, which
  could aid IRS by providing savings over time. For example:
    • providing more automated services (GAO-12-176);
    • conducting more pre-refund compliance checks through broadening use of
       Math Error Authority (GAO-10-349, GAO-10-225);
    • using data from new information returns effectively (GAO-11-557);
    • leveraging paid tax preparers (GAO-12-652T, GAO-11-336); and
    • increasing availability of electronic data (GAO-12-33).

• These reports provide recommendations to increase efficiencies and manage
  operations more strategically. However, some may require upfront investments
  before the efficiencies can be fully realized.



                                                                            Page 15




                           Page 21                                 GAO-12-603 IRS 2013 Budget
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Fiscal Year 2013 Budget Data and Trends
Summary of Key Budget and FTE Data

• The fiscal year 2013 budget request proposes:
   • a $944.5 million (8.0 percent) increase over fiscal year 2012, with the
      Enforcement and Operations Support appropriations accounting for the
      largest increase.
        • The fiscal year 2013 request is an increase of 5.3 percent over fiscal year
          2011.
        • Of the $944.5 million, $360.5 million is for PPACA-related implementation,
          to be funded from IRS’s appropriations. IRS officials expect the HIRIF
          funds will not available for use in fiscal year 2013.
   • a Taxpayer Service appropriation at about the same level as last year.
        • IRS expects to gain savings and efficiencies from more electronically filed
          returns and other program reductions.
   • a net increase of about 4,500 (5.0 percent) FTEs over fiscal year 2012.
        • The largest requested increase for FTEs is for Enforcement.
        • Of the 4,500 FTEs, 859 are for PPACA, including 803 FTEs which IRS
          officials told us were on-board and funded by HIRIF in fiscal year 2012.

                                                                                 Page 16




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Fiscal Year 2013 Budget Data and Trends
Dollars by Appropriation Account, Fiscal Year 2008
through Fiscal Year 2013
Table 3: Fiscal Year 2008 through Fiscal Year 2012 Enacted and Fiscal Year 2013 Budget Request for IRS by Appropriation
Account (dollars in millions)
                                                                                                               Dollar change                           Percent change
                                                                                                             fiscal year 2012                          fiscal year 2012
                                                                                                                     enacted                                   enacted
                                     Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year    compared to                               compared to
                                           2008        2009        2010        2011        2012        2013 fiscal year 2013                           fiscal year 2013
Appropriation Account                   enacted     enacted     enacted     enacted     enacted requested          requested                                 requested

Enforcement                               $4,780         $5,117         $5,504         $5,493         $5,299        $5,702                   $403                    7.59
Operations support                         3,841          3,867          4,084          4,057          3,947         4,476                    529                   13.40
Taxpayer services                          2,191          2,293          2,279          2,293          2,240         2,253                      13                   0.60
BSM                                          267            230            264            263            330           330                       0                   0.00
HITCA                                         15             15             16             15             -- a          -- a                   -- a                   -- a
Subtotal                                  11,095         11,523         12,146         12,122         11,817        12,761                    945                    7.99
Other resources, such as user
feesb                                         566            390            539           655            559            592                     34                    6.04
Total funding available for
obligationc                              $11,661        $11,913        $12,686       $12,777        $12,375        $13,354                   $979                     7.91

 Source: Fiscal Year 2010 through Fiscal Year 2013 Congressional Budget Justifications for IRS.
 Notes: Dollars are nominal and not adjusted for inflation, and numbers may not add due to rounding.
 aIn fiscal year 2012, administrative resources for HITCA were moved to the Taxpayer Services appropriation under the Consolidated Appropriations Act, 2012 (Pub. L. No. 112-

 74).
 bOther resources available for obligation are estimated by IRS and not subject to the annual appropriations process.

 cIRS received an additional $20.7 million in fiscal year 2010 and $168.2 million in fiscal year 2011 from HHS’s HIRIF fund to implement PPACA. In fiscal year 2012, IRS plans

 to request $332.2 million from HHS and had received $135.4 million through March 31, 2012. IRS officials do not anticipate requesting HHS funds in fiscal year 2013, and have
 requested $360.5 million through IRS’s appropriation for fiscal year 2013.


                                                                                                                                                                     Page 17




                                                         Page 23                                                                                      GAO-12-603 IRS 2013 Budget
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Fiscal Year 2013 Budget Data and Trends
Staffing by Appropriation Account, Fiscal Year 2008
through Fiscal Year 2013

 Table 4: Fiscal Year 2008 through Fiscal Year 2011 Actual, Fiscal Year 2012 Enacted, and Fiscal Year 2013 Requested FTEs by
 Appropriation Account
                                                                                                                 FTE change fiscal Percent change
                                                                                                                     year 2012     fiscal year 2012
                                                                                                                      enacted          enacted
                                                                             Fiscal year Fiscal year Fiscal year    compared to      compared to
Appropriation                            Fiscal year Fiscal year Fiscal year    2011        2012        2013      fiscal year 2013 fiscal year 2013
account                                  2008 actual 2009 actual 2010 actual actuala      enacted requested          requested        requested
Enforcement                                     46,431           47,361           50,400         49,920         47,586         51,583                    3,997                     8.40
Operations support                              12,079           12,101           12,262         12,103         11,985         12,609                      624                     5.21
Taxpayer services                               31,487           32,422           31,607         31,574         30,535         30,570                        35                    0.11
BSM                                                 347              322              337            309            605            495                    -110                  -18.18
HITCAb                                                10              10               12               0              0              0                       0                         0
Subtotal                                        90,354           92,216           94,618         93,906         90,711         95,257                    4,546                     5.01
Other resources, such as user
feesc                                             1,331            1,153              752          1,003            939            939                        0                         0
Total FTEs d                                    91,685           93,369           95,370         94,909         91,650         96,196                    4,546                     4.96

Source: Fiscal Year 2008 through Fiscal Year 2013 Congressional Budget Justifications for IRS.
aIRS reported both enacted and actual FTEs for fiscal year 2011 in the fiscal year 2013 Congressional Budget Justification. For purposes of this table, we reported actual amounts.

bThe administrative resources for HITCA were moved to the Taxpayer Services appropriation under the Consolidated Appropriations Act, 2012 (Pub. L. No. 112-74).

cOther resources available for obligation are estimated by IRS and not subject to the annual appropriations process.

dIRS realized an additional 33 FTEs in fiscal year 2010, 576 FTEs in fiscal year 2011, and is projecting 227 more FTEs for fiscal year 2012, for a cumulative total of 803 FTEs to be

funded from HIRIF, according to IRS officials. The budget for fiscal year 2013 requested an additional 56 FTEs to make the cumulative total 859 FTEs. For fiscal year 2013, the
budget proposes to fund the entire 859 FTEs from IRS’s appropriation, and not HIRIF.



                                                                                                                                                                         Page 18




                                                            Page 24                                                                                         GAO-12-603 IRS 2013 Budget
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Fiscal Year 2013 Budget Data and Trends
Of the $945 Million Requested Increase, the Administration
Proposed a Program Integrity Cap Adjustment for Increases in IRS
Enforcement and Compliance Funding
• Congress passes              Figure 3: Breakdown of IRS Fiscal Year 2013 Requested Increase
  program integrity cap
  adjustments to allow
  additional funding above
  discretionary spending
  limits for certain
  activities that are
  expected to generate
  benefits that exceed
  cost.
• The Administration
  requested a cap
  adjustment of $691
  million for IRS in fiscal
  year 2013.


                                                                                                         Page 19




                          Page 25                                                               GAO-12-603 IRS 2013 Budget
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 Fiscal Year 2013 Budget Data and Trends
Breakout of $945 Million Requested Increase

Table 5: Funding Requested for New Initiatives and Changes Due to Inflation, Pay Raises, and Savings and Efficiencies (dollars in millions)
                                                                                                                                    Fiscal year
                                                                                                                                       2013
                                                                                                                                     funding
                                                                  Description of new initiatives                                    requested     Subtotal    Total

Total changes                                                                                                                                                $1,015.3
      New initiatives                                                                                                                                906.9
                             Restore audit and collection coverage to address individual tax compliance issues (Projected ROI:
                             6.8 to 1. IRS’s ROI estimate is based on direct revenues collected and does not include revenue
                             that may result from an increase in voluntary compliance.)                                                  200.5
                             Implement tax law changes for Information Reporting and Document Matching (IRDM) and PPACA
         Enforcement         programs (Projected ROI: 3.5 to 1).                                                                         128.9
         initiatives
                             Promote offshore compliance (Projected ROI: 6.4 to 1).                                                      110.7
                             Implement revenue protection strategy (Projected ROI: 1.9 to 1).                                              88.9
                             Other (improve international compliance, build out return preparer program, address appeals
                             workload, leverage digital evidence, and implement uncertain tax position reporting requirements)
                             (Unable to provide ROI because not all initiatives are revenue generating.)                                 102.9
         Infrastructure      To implement PPACA-related IT and operational infrastructure to allow IRS to validate household
         initiatives         income and determine the amount of advance payments of the tax credit.                                      275.1
    Inflation adjustment     Inflation adjustments for non-labor expenses such as rent, postage, and health benefits, in order to
    and pay raises           maintain current levels and a proposed pay raise of 0.5 percent.                                                        108.4
                             Savings resulting from targeted program reductions ($59.7 million, e.g., using more online tools and
Savings and
                             IT contractual services), increased use of electronic filing of returns ($8.6 million), and reduced
efficiencies
                             travel ($2.6 million).                                                                                                             -70.9
Appropriation increase                                                                                                                                        $944.5

Source: Fiscal Year 2013 Congressional Budget Justification for IRS.
Note: Numbers may not add due to rounding.                                                                                                               Page 20




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 New Initiatives and ROI
7 of the 12 Proposed New Enforcement
Initiatives ($603.1 Million) Supported with ROIs1
 Figure 4: Implement Tax Legislative                                    Figure 5: Restore Audit Coverage to                                       Figure 6: Promote Offshore Compliance
 Changes                                                                Address Individual Tax Compliance




 Implement IRDM (2015 ROI: 7.5 to 1) and PPACA                          Increases for audit and individual compliance                             Address FATCA requirements, strengthen offshore
 (2015 ROI: 1.8 to 1). Related GAO work: GAO-12-                        programs, such as correspondence exams of                                 enforcement, and develop related IT. Related GAO
 59, GAO-11-719, GAO-11-557.                                            refundable credits, the global high wealth strategy,                      work: GAO-11-730, GAO-11-493, GAO-11-272,
                                                                        two-dimensional barcoding, and document imaging.                          GAO-09-478T, GAO-08-99, GAO-08-778.
                                                                        Related GAO work: GAO-12-33.
1IRS’s ROI calculations have limitations that reflect the challenges of estimating ROIs. For example, they do not include benefits of improved voluntary compliance. In addition, the
"investment" or costs should ideally recognize not just IRS costs, but any costs borne by others. IRS's ROI estimates provide useful information but, given the limits of current data, are not   Page 21
complete estimates of benefits and costs.




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 New Initiatives and ROI
7 of the 12 Proposed New Enforcement Initiatives
($603.1 Million) Supported with ROIs1 (continued)
            Figure 7: Implement Revenue Protection Strategy                                                 Figure 8: Restore Collection Coverage




          Prevent erroneous refunds through four programs                                                   Increases for collection coverage such as
          (return review, management taxpayer assurance,                                                    staffing for Automated Collection Systems,
          identity theft, and prisoner tax compliance)                                                      Offers in Compromise, and Accounts
          Related GAO work: GAO-11-721T, GAO-11-                                                            Management programs. Related GAO work:
          691T, GAO-11-674T, GAO-09-882, GAO-02-363.                                                        GAO-06-525.
1IRS’s ROI calculations have limitations that reflect the challenges of estimating ROIs. For example, they do not include benefits of improved voluntary compliance. In addition, the
"investment" or costs should ideally recognize not just IRS costs, but any costs borne by others. IRS's ROI estimates provide useful information but, given the limits of current data, are not   Page 22
complete estimates of benefits and costs.




                                                                        Page 28                                                                                                      GAO-12-603 IRS 2013 Budget
                                                                        Appendix I: Briefing Slides




 New Initiatives and ROI

 7 of the 12 Proposed New Enforcement Initiatives
 ($603.1 Million) Supported with ROIs1 (continued)
         Figure 9: Improve International Compliance                                                              Figure 10: Build Out Tax Return Preparer Program




         Improve international tax compliance for business
                                                                                                                   Enforce compliance, pursue fraud, educate preparers and
         by adding specialist covering complex transactions,
                                                                                                                   enforce ethical standards. Related GAO work: GAO-11-868T,
         U.S. multinationals, transfer pricing issues, etc.
                                                                                                                   GAO-11-336, GAO-06-563T, GAO-03-610T, Podcast,
         Related GAO work: GAO-11-730, GAO-11-493,
                                                                                                                   “Regulation of Tax Preparation and Filing.”
         GAO-09-934.
1IRS’s ROI calculations have limitations that reflect the challenges of estimating ROIs. For example, they do not include benefits of improved voluntary compliance. In addition, the
"investment" or costs should ideally recognize not just IRS costs, but any costs borne by others. IRS's ROI estimates provide useful information but, given the limits of current data, are not   Page 23
complete estimates of benefits and costs.




                                                                        Page 29                                                                                                      GAO-12-603 IRS 2013 Budget
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New Initiatives and ROI
Some New Initiatives Were Not Supported by
Economic Analysis
• We examined 2 of the 5 new initiatives without ROIs, the ones pertaining to the PPACA
mandate, which totaled $275.1 million.
    •IRS did not estimate ROIs for these 5 new initiatives because they do not generate
     enforcement revenue. However, IRS did not justify them with any other similar
     economic analyses, such as a cost-effectiveness analysis, which compares costs of
     alternative means of achieving the same benefit.
Table 6: Purpose and Related GAO Work, Estimated Cost, and Basis for New Initiatives without ROI (in millions)
                                                                                                                            Estimated fiscal year   Basis of
               Initiative                                             Purpose (related GAO work)                              2013 cost (FTE)       initiative
Implement IT and operational               Develop new and modify/enhance of new and existing IT systems to
infrastructure to deliver PPACA            administer the PPACA. (GAO-11-719)                                                        $266.9 (537)   Mandated
                                           Add 92 settlement officers and 40 appeals officers to handle rising appeals
Address appeals workload                   workload.                                                                                   20.3 (132)   IRS-initiated
                                           For contractor to develop IT, infrastructure, and systems to implement
Implement IT changes needed for            individual responsibility health coverage requirement of PPACA. (GAO-11-
individual coverage for PPACA              719)                                                                                           8.2 (0)   Mandated
Leverage digital evidence for              Implement “virtual digital evidence processing environment” that will allow CI
Criminal Investigation (CI)                to expedite and improve analysis of electronic data and avoid travel costs.                    4.5 (8)   IRS-initiated
                                           Increase IRS capacity to provide guidance and certainty on areas of legal
Implement uncertain tax position           uncertainty for large business taxpayers, e.g., advanced pricing agreements
reporting requirements                     and private letter rulings.                                                                   4.0 (20)   IRS-initiated
Total                                                                                                                                $303.9 (697)

Source: GAO analysis of IRS’s Fiscal Year 2013 Congressional Budget Justification for IRS.
                                                                                                                                                        Page 24




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    New Initiatives and ROI
Alternatives to Implement PPACA Initiatives Considered, but
Not Potential Costs

•    At the time the PPACA mandate was imposed, IRS considered alternative approaches for
     implementing it, but did not consider the costs of the alternatives. The analyses did consider other
     factors, such as risk to the agency and time. We have previously reported on the need for IRS to
     conduct economic analyses.1

•    Sound cost-effectiveness analyses demonstrate that different approaches were evaluated,
     according to OMB Circular A-94. They also provide assurance that the alternatives chosen were
     the most cost effective and, if not, why. A cost-effectiveness analysis is itself an investment, so the
     level of detail should be commensurate with the magnitude of the initiative.

•    Officials said they did not determine the costs of all PPACA alternatives. They said they normally
     develop cost estimates only for the alternative they plan to implement.

•    When comparisons of alternatives do not consider costs, budget decision makers cannot be
     assured that alternatives were fully evaluated and the best alternative, based on factors including
     cost, was selected.




1GAO,   Tax Debt Collection: IRS Could Improve Future Studies by Establishing Appropriate Guidance, GAO-10-963 (Washington, D.C.: Sept. 24, 2010).
                                                                                                                                                            Page 25




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PPACA Cost Estimate
PPACA Cost Estimate Partially Met Best Practices for
Reliability, but Has Not Been Updated Since 2010

•     IRS developed a cost estimate for PPACA in October 2010. However,
      it did not fully meet best practices for a reliable cost estimate,
      including containing timely updates to ensure accuracy. We alerted
      IRS to this issue in June 2011. Since then, IRS has not updated its
      cost estimate (see appendix III for a full description of our assessment
      of IRS’s PPACA cost estimate).

•     Cost estimates establish and defend budgets. They are integral to
      determining and communicating a realistic view of likely cost and
      schedule outcomes that can be used to plan the work necessary to
      develop, produce, install, and support a program. Best practices for a
      reliable cost estimate are outlined in our Cost Guide.1 In particular, we
      note the importance of updated and timely cost estimates that are
      available to decision makers as early as possible.
1GAO-09-3SP

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PPACA Cost Estimate
PPACA Cost Estimate Partially Met Best Practices for
Reliability, but Has Not Been Updated Since 2010
(continued)
• IRS officials told us cost estimates are updated after projects reach particular
  milestones. The last milestone for PPACA was reached in January 2012. IRS
  awarded a contract to update the PPACA cost estimate on April 26, 2012. The
  contract specifies that the updated cost estimate should follow GAO best
  practices for a comprehensive, well documented, accurate, and credible cost
  estimate. IRS officials expect that the updated cost estimate will be completed
  by August or September 2012.

• Until the update is completed, budget decision makers may not have sufficient
  information to consider trade-offs for fiscal year 2013 budget deliberations. For
  example, they will not know the fraction of the multi-year PPACA effort being
  funded in fiscal year 2013 and therefore will not know the costs that remain to
  be funded in future years.




                                                                                Page 27




                            Page 33                                    GAO-12-603 IRS 2013 Budget
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    Budgeting for New Staff
    Budgeting Practices Could Result in Funding
    Being Used for Other Purposes
•     IRS budgets for staff for new initiatives assuming an
                                                                                                        Figure 11: Actual Hiring for New Permanent Staff for New
      October 1 start date, but in recent years, it hired most
                                                                                                        Initiatives by Quarter, Fiscal Year 2009 through Fiscal Year
      new staff late in the fiscal year. During fiscal year 2009                                        2010
      and fiscal year 2010, the last years IRS received new
      initiative funding, most new staff started in the 3rd or 4th
      quarter, as shown in figure 11.

•     While partly due to the timing of enacted budgets, IRS’s
      hiring pattern is also due to practical limitations in hiring
      and training large numbers of staff. For example, IRS
      significantly planned and prepared for a large hiring wave
      in fiscal year 2009, when it brought on about 1,500 new
      employees in three waves over a 9 month period.1

•     With congressional approval, IRS can use funding
      budgeted for new staff for other purposes within limits.2

•     Based on recent hiring trends for new initiatives, we
      estimate about $300 million of planned funding for FTEs
      in fiscal year 2013 could be used for other purposes,
      subject to congressional approval, and are not described
      or substantiated in the budget.
    1TreasuryInspector General for Tax Administration, Challenges Remain to Balance Revenue Officer Staffing With Attrition and Workload Demands, TIGTA 2011-30-039
    (Washington, D.C.: May 6, 2011).


                                                                                                                                                                        Page 28
    2IRS   can transfer funds between appropriations, but those transfers cannot exceed 5 percent of any appropriation or 3 percent of the Enforcement appropriation.




                                                                   Page 34                                                                                       GAO-12-603 IRS 2013 Budget
                                                           Appendix I: Briefing Slides




    Budgeting for New Staff
Budgeting Practices Could Result in Funding
Being Used for Other Purposes (continued)
•    We have previously reported that budgets should be transparent, meaning that are
     made clear, salient, and understandable to decision makers and the public.1 Budget
     transparency is critical for effective congressional oversight and decision making. OMB
     Circular A-11 suggests agencies consider delays in recruiting and hiring and actual
     compensable number of hours worked when budgeting for staff.

•    According to IRS and OMB officials, there is an agreement between the two agencies
     dating from the 1990s that permits IRS to budget for new staff assuming full year costs.
     According to officials, this practice helps IRS ensure it has full funding available for the
     newly hired staff in the second year without the need to justify a budget increase and
     manage uncertainties due to delays in funding.
       • Neither IRS nor OMB officials were able to provide us with written documentation of
          the agreement. OMB officials said that they commonly make informal, oral
          agreements with agencies as part of the budget process and that Circular A-11
          allows for some flexibility.

•    Providing substantiation that fully identified planned uses for funding that result from
     hiring later in the year could increase transparency and aid Congress in making difficult
     resource decisions.
1GAO, Internal Revenue Service: Assessment of Budget Justification for Fiscal Year 2011 Identified Opportunities to Enhance Transparency, GAO-10-687R
(Washington, D.C.: May 26, 2010), and GAO, Budget Issues: Budgeting for Federal Insurance Programs, GAO/T-AIMD-98-147 (Washington, D.C.: April 23, 1998).   Page 29




                                                           Page 35                                                                                   GAO-12-603 IRS 2013 Budget
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IT Investments
IT Is About 20 Percent of IRS’s Fiscal Year 2013
Budget Request
• IRS requested about $2.5 billion for IT for fiscal year 2013—$330 million for
  BSM and $2.14 billion for other investments.

          • Of the $2.5 billion requested,
             • $1.6 billion is planned to fund 18 major investments1 and
             • $900 million is planned to fund 125 non-major investments.

• For fiscal year 2012, IRS has 20 major IT investments2 for which cost and
  schedule information and Treasury CIO ratings are reported to OMB on a
  monthly basis (see appendix IV for a description of the major investments). The
  CIO's evaluation is based on a number of factors to forecast the future success
  of the investment.


1According to IRS, major investments are defined by Treasury as those that cost $10 million in either current year or budget year, or $50 million over the 5 year period
extending from the prior year through budget year +2.

2 IRS   eliminated two major investments in the fiscal year 2013 budget request.                                                                                           Page 30




                                                               Page 36                                                                                         GAO-12-603 IRS 2013 Budget
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IT Investments
IRS’s Major Investments and Estimated IT
Costs
Table 7: IRS’s 20 Major Investments and Estimated IT Costs for Fiscal Year 2011 through Fiscal Year 2016 (in millions)
                                                                                                                         Total estimated
                                                                                          Total estimated                operations and         Total estimated                          Total estimated
Investment name                                                                          development costs              maintenance costs    government FTE costs                             costs
Account Management Services (AMS)                                                                        $0.0                          $43.0                  $60.2                                 $103.2
Affordable Care Act (ACA) Administrationa                                                               303.5                            0.0                    0.0                                  303.5b
Current Customer Account Data Engine (CADE)c                                                            557.5                          116.0                   22.8                                   696.3
CADE 2                                                                                                  852.7                            0.2                  295.0                                 1,148.0
Electronic Fraud Detection System (EFDS)                                                                  0.0                           59.6                   18.1                                    77.7
e-Services (e-SVS)                                                                                       28.7                           34.3                   19.5                                    82.5
Foreign Account Tax Compliance Act (FATCA)                                                               23.9                            8.5                    9.9                                    42.3
Implement Return Review Program (RRP) (Replaces EFDS)                                                          72.2                              8.4                             6.8                       87.3
Individual Master File (IMF)                                                                                    0.0                             22.3                            49.1                       71.4
Information Reporting and Document Matching (IRDM)                                                             54.8                              6.6                            49.4                      110.8
Integrated Customer Communication Environment (ICCE)                                                           16.2                             29.8                           43.3                        89.3
Integrated Data Retrieval System (IDRS)                                                                         0.0                             23.0                          266.9                       290.0
Integrated Financial System/CORE Financial System (IFS)                                                        13.2                             73.1                              8.5                      94.9
Integrated Submission and Remittance Processing System (ISRP)                                                    1.3                           65.2                            13.8                       80.3
IRS End User Systems and Services (EUSS)                                                                         0.0                          585.1                           892.1                    1,477.3
IRS Main Frames and Servers Services and Support (MSSS)                                                         0.0                         4,033.7                             0.0                    4,033.7
IRS Telecommunications Systems and Support (TSS)                                                                0.0                         1,432.9                           322.3                    1,755.1
IRS.GOV - Portal Environmentd                                                                                 320.0                           244.0                           564.0                    1,128.0
Modernized e-File (MeF)                                                                                       184.8                            54.4                            52.9                      292.1
Service Center Recognition/Image Processing System (SCRIPS)                                                    1.0                            56.0                             11.3                      68.3
Source: GAO analysis of IRS’s Exhibit 300A data.          Total                                           $2,429.9                        $6,896.3                         $2,705.9                 $12,032.0
Note: Numbers may not add due to rounding.
aIRS is implementing PPACA requirements under the investment name of ACA, and funding through the end of fiscal year 2012 is from HIRIF.
bThis amount only represents IT estimates for fiscal year 2013 because we did not receive actual fiscal year 2011 costs from IRS in time to include them. We also did not receive IT estimates for fiscal year

2012, fiscal year 2014, fiscal year 2015, and fiscal year 2016 from IRS in time to include them.

                                                                                                                                                                                               Page 31
cAccording   to IRS, the Current CADE Investment ended on December 31, 2011. The costs represent life-cycle costs consistent with how costs are reported to OMB for this investment.
dThe   costs represent life-cycle costs consistent with how costs are reported to OMB for this investment.




                                                                      Page 37                                                                                                      GAO-12-603 IRS 2013 Budget
                                                                Appendix I: Briefing Slides




IT Investments
Performance of IRS’s Major IT Investments

•       According to IRS, most major IT investments were generally within cost and schedule
        estimates between October 2011 and March 20121 and Treasury CIO ratings showed
        that most major IT investments were moderately low risk in recent months. However, we
        could not determine whether these investments delivered planned functionality.
•       IRS reported that, between October 2011 and March 2012,
          • 14 of the 20 major IT investments were within 10 percent of cost and schedule
             estimates.
          • the remaining 6 investments reported significant variances from cost or schedule
             estimates.2 Significant variances are typically analyzed to determine root causes,
             as they may indicate problems needing corrective actions (see appendix V).
              • Over cost estimate: Current CADE and MeF
              • Over schedule estimate: ISRP and MSSS
              • Under cost estimate: ACA3 and ICCE




1Based  on changes to OMB budget guidance, IRS adopted a new methodology for reporting on cost and schedule performance for its major IT investments, starting October 2011.
Given these changes, we are reporting from October 2011 to March 2012.
2A   significant variance from cost and/or schedule is defined as anything below or exceeds 10 percent.
3IRS    is implementing PPACA requirements under the investment name of ACA.                                                                                        Page 32




                                                                Page 38                                                                                 GAO-12-603 IRS 2013 Budget
                                                      Appendix I: Briefing Slides




  IT Investments
 CIO Rated 17 Investments at Moderately Low or
 Low Risk in Recent Months
•The CIO rating shows   Table 8: CIO Rated Major IT Investments
how the Treasury CIO
viewed the performance
of each investment
during a rating period.

•This rating is based on
risk management,
requirements
management, contract
or oversight, historical
performance, human
capital, or any other
factors that the CIO
deems important to
forecasting the future
success of the
investment.




                           aThese investments were not reported on the IT dashboard until it was designated a major IT investment in October 2011.
                           bAccording to IRS, CIO ratings for August and September 2011 were not available because of the transition period to newer cost and
                           schedule calculations.

                           cBecause  HHS has overall responsibility for ACA, IRS does not provide separate reports to OMB on this investment. We did not obtain   Page 33
                           the CIO rating information prior to March 2012 from HHS in time for this review.




                                                      Page 39                                                                                        GAO-12-603 IRS 2013 Budget
                                                             Appendix I: Briefing Slides




    IT Investments
IRS Does Not Have a Quantitative Measure
of Scope
•    While IRS reports on the cost and schedule of its major investments and provides CIO ratings for
     them, the agency does not have a quantitative measure of scope—a measure that shows
     functionality delivered.
•    Having such a measure is a good practice as it provides information about whether an investment
     delivered the functionality that was paid for.
•    In 2007, we recommended that IRS develop a quantitative measure of scope for BSM in order to
     have complete information on the performance of these investments.1 IRS agreed with the
     recommendation, and in response, developed a measure to include in the fiscal year 2012 BSM
     expenditure plan. The agency, however, did not use the measure since the expenditure plan was
     discontinued.
       • IRS has several methods for ensuring that intended functionality is delivered, including project
            health assessment reports, which provide project status updates and flag risks; and end of
            test completion reports, which are signed off at the end of the development and deployment
            phases. None of these methods, however, provides for a quantitative measure of functionality
            delivered. Officials stated they recognize the value of developing such a measure and plan to
            determine a schedule for doing this.
•    Until it develops a quantitative measure of scope (i.e., functionality delivered), IRS will not have
     complete information on the performance of its investments and will therefore have less assurance
     that it is effectively managing these investments.


1GAO,   Business Systems Modernization: Internal Revenue Service’s Fiscal Year 2007 Expenditure Plan, GAO-07-247 (Washington, D.C.: February 15, 2007).
                                                                                                                                                                 Page 34




                                                             Page 40                                                                                      GAO-12-603 IRS 2013 Budget
                                                              Appendix I: Briefing Slides




 Legislative Proposals
GAO Has Conducted Analyses Related to 6 of 22
Legislative Proposals Included in the Budget
Request for IRS
• The 22 legislative proposals are estimated to generate more than $12 billion over 10 years
  and are estimated to cost $80.2 million over 3 years.


Table 9: Legislative Proposals Related to Prior GAO Work (in millions)

                                                                                                            Projected                Projected
                                                                                                          revenues over              costs over               Related GAO
               IRS legislative proposals related to prior GAO work                                           10 years                 3 years                   reports
 Increase certainty about the rules pertaining to classification of employees as                                     $8,372                      $1.9               GAO-09-717
 independent contractors
 Extend IRS math error authority in certain circumstances                                                               $173          Not available                 GAO-10-349,
                                                                                                                                                                    GAO-10-225
 Allow IRS to absorb credit and debit card processing fees for certain tax                                               $19                     $9.6                GAO-10-11
 payments
 Improve and make permanent the provision authorizing the IRS to disclose                                       Negligible            Not available                 GAO-06-100
 certain return information to certain prison officials                                                     revenue effect
 Provide Treasury with the regulatory authority to require electronic filing of all                            No revenue                      $11.2                GAO-05-491
 Form 5500 Annual Report information                                                                                effect
 Require taxpayers who prepare their returns electronically, but file their                                    No revenue                        $6.8                GAO-12-33,
 returns on paper, to print their returns with a two-dimensional bar code                                           effect                                           GAO-08-38

 Sources: IRS, Fiscal Year 2013 Congressional Budget Justification, and Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2013
 Revenue Proposals (Washington, D.C.: February 2012).                                                                                                                  Page 35




                                                              Page 41                                                                                       GAO-12-603 IRS 2013 Budget
                                                            Appendix I: Briefing Slides




GAO Open Matters and Recommendations
IRS At Least Partially Implemented 5 Prior GAO
Recommendations to Improve the Budget Presentation
Table 10: IRS Took Steps to Implement Prior Recommendations
        Recommendations                                   Actions taken by IRS                                                                      Benefit
Extend the use of ROI in future            IRS made a significant step forward in beginning to calculate actual ROIs             Actual ROIs could provide information about
budget proposals to include major          for major enforcement programs. Specifically, IRS captured actual revenue             how programs and initiatives are performing,
enforcement programs.a                     and cost associated for Exam, Collections and Automated Underreporter                 and could serve as a basis for assessing the
                                           (AUR) programs. IRS officials said they plan to report this data in the               revenue and cost impact of program-level
                                           budget justification next year, pending various approvals.                            changes.
Develop ROIs for IRS’s enforcement         Although not at the program initiative level, IRS made a significant step             Actual ROIs could provide information about
programs using actual revenue and          forward in beginning to calculate actual ROIs for major enforcement                   how programs and initiatives are performing,
full cost data and compare the actual      programs. Specifically, IRS captured actual revenues and costs associated             and could serve as a basis for assessing the
ROIs to the projected ROIs included        for Exam, Collections and AUR programs. IRS officials said they plan to               revenue and cost impact of program-level
in the full budget request.b               report this data in the budget justification next year, pending various               changes.
                                           approvals.
Report how savings beyond                  IRS reported in the fiscal year 2013 budget request, how savings beyond               Knowing how an agency spent excess
projections were used. The amount          projections were used. For fiscal year 2011, IRS reported that it realized            savings, particularly in years when the excess
of explanation provided should             $277.2 million and 960 FTE in actual savings—$86.5 million and 488 FTE                is significant, could help Congress assess
correspond to the amount of                more than projected.                                                                  budgetary needs in the future.
savings.c
Provide cost estimates for individual      IRS provided cost estimates for individual legislative proposals in the Fiscal        By knowing estimated costs to implement an
legislative proposals in future budget     Year 2013 Congressional Budget Justification for IRS.                                 individual legislative proposal, Congress has
justifications.c                                                                                                                 important information to use when weighing
                                                                                                                                 proposals.
Include measures of cost and               IRS included measures of cost and schedule performance for major IT                   Congressional stakeholders we met with
schedule performance for major IT          systems in the Fiscal Year 2013 Congressional Budget Justification for IRS.           stated that having a summary of cost and
systems in Operations Support, such                                                                                              scheduled performance for major IT systems in
as it does for BSM.c                                                                                                             Operations Support would be helpful for
                                                                                                                                 oversight.
 Source: GAO analysis.
 aGAO-08-567

 bGAO,   Internal Revenue Service: Review of the Fiscal Year 2010 Budget Request, GAO-09-754 (Washington, D.C.: June 3, 2009).
 cGAO-11-547                                                                                                                                                       Page 36




                                                            Page 42                                                                                     GAO-12-603 IRS 2013 Budget
                                                            Appendix I: Briefing Slides




    GAO Open Matters and Recommendations
Some Prior Recommendations to Improve the
Budget Presentation Remain Open
•       Implementing the following recommendations could provide important information for
        budget decision makers.


     Table 11: Some Recommendations to IRS Remain Open
                                Open recommendations                                                                        Benefit
     Provide additional information, which could be qualitative if necessary to      Program-level information increases Congress’s ability to understand priorities and
     avoid losing existing reprogramming flexibility, about the program activities   make more informed decisions about the use of resources.
     in the budget justification to better indicate IRS’s priorities.a
     Make explicit linkages between initiatives and proposals in the budget and      Without an explicit and transparent connection between IRS’s strategic documents
     strategic documents.a                                                           and the budget request, Congress and other stakeholders may not be able to
                                                                                     understand the priority that IRS is giving to its efforts to improve service and
                                                                                     enforcement.
     Explain in the budget justification noteworthy changes in performance           Clear linkages between performance goals and funding can help determine how
     goals that reflect changes from previous performance and describe the           funded activities contribute to operational goals and specific measures. These
     impact on funding.a                                                             linkages can also illustrate how targets align with funding and how efficiently
                                                                                     resources are used.
     Expand efforts to systematically identify savings and efficiencies as part of   Best practices suggest that agencies routinely identify savings and efficiencies. By
     its budget development process on a periodic, but not necessarily annual,       not applying the more systematic and productive IT approach agency wide, IRS
     basis.b                                                                         might be missing opportunities to realize savings and efficiencies.
    Source: GAO analysis of prior budget related reports.
    aGAO-10-687R
    bGAO-11-547




                                                                                                                                                                Page 37




                                                            Page 43                                                                               GAO-12-603 IRS 2013 Budget
                                                                Appendix I: Briefing Slides




GAO Open Matters and Recommendations
106 Open Matters for Congress and Recommendations to
IRS Regarding Tax Administration Could Result in
Potential Savings or Increased Revenues
• As of March 19, 2012, 33 GAO products contain 10 matters for Congress and
  96 recommendations to IRS (see appendix VI).

• 32 increase revenue, 7 increase savings, 16 increase both savings and
  revenue, and 51 have indirect financial benefits. For example:
        • If Congress amended the Internal Revenue Code to make all taxpayers
          with rental real estate activity subject to the same information reporting
          requirements as other taxpayers operating a trade or business, IRS
          could generate $2.5 billion over 10 years.a

                 • If IRS could obtain more helpful information about taxpayers' mortgages
                   by expanding information collected on Form 1098, it could improve
                   taxpayer compliance with statutory requirements and increase
                   revenues.b

• Since last year, 1 matter and 25 recommendations were implemented.
aJointCommittee on Taxation, “Estimated Budget Effects of the Revenue Provisions Contained in the President’s Fiscal Year 2011 Budget Proposal,” JCX-7-10 R (March 15, 2010).
bGAO,  Home Mortgage Interest Deduction: Despite Challenges Presented by Complex Tax Rules, IRS Could Enhance Enforcement and Guidance, GAO-09-769 (Washington, D.C.: July      Page 38
29, 2009).




                                                                Page 44                                                                                            GAO-12-603 IRS 2013 Budget
                                    Appendix I: Briefing Slides




Conclusions

•   We have identified several areas where budget decision makers lack information that would be
    helpful in making decisions about resource trade-offs at IRS.

      •   Unlike most enforcement initiatives that IRS now justifies with ROI estimates, non-
          enforcement investment initiatives are not justified with similar economic analyses, such as
          cost-effectiveness analyses. When comparisons of alternative investments for accomplishing
          a goal do not consider costs, budget decision makers cannot be assured that alternatives
          were fully evaluated and that the best alternative was selected.
      •   Without a timely, updated cost estimate for PPACA, budget decision makers will not know the
          fraction of the multi-year effort being funded in fiscal year 2013 or the subsequent remaining
          costs.
      •   Because the budget request for hiring new staff is not based on expected hiring dates, but
          instead assumes hiring will occur at the beginning of the fiscal year, some funds will be
          available for other uses, which are not described or substantiated in the budget request.
      •   Although IRS tracks the schedule and cost performance of IT investments, it does not have a
          quantitative measure to determine whether it is delivering planned functionality. Without this
          measure, budget decision makers lack complete information about IRS’s performance in
          managing IT investment projects.




                                                                                                  Page 39




                                    Page 45                                              GAO-12-603 IRS 2013 Budget
                                    Appendix I: Briefing Slides




Recommendations for Executive Action

•   To continue to improve information on program cost and results that could aid in resource decision
    making, we recommend that the Commissioner of Internal Revenue

      •   ensure cost-effectiveness analyses are conducted for future significant investments when
          there are alternative approaches for achieving a given benefit, such as for any new significant
          PPACA projects;

      •   ensure that an updated PPACA cost estimate is completed by September 2012 in accordance
          with best practices in the GAO Cost Guide;

      •   prepare funding requests for new staff based on estimated hiring dates; and

      •   develop a quantitative measure of scope, at a minimum for its major IT investments, to have
          more complete information on the performance of these investments.




                                                                                                  Page 40




                                    Page 46                                              GAO-12-603 IRS 2013 Budget
Appendix II: Comments from the Internal
              Appendix II: Comments from the Internal
              Revenue Service



Revenue Service




              Page 47                                   GAO-12-603 IRS 2013 Budget
Appendix III: Reliability of Patient Protection
               Appendix III: Reliability of Patient Protection
               and Affordable Care Act Cost Estimate



and Affordable Care Act Cost Estimate

               The following figures outline our assessment of the extent to which the
               Internal Revenue Service’s (IRS) Fiscal Year 2013 Patient Protection and
               Affordable Care Act (PPACA) cost estimate for new initiatives meet best
               practices. This information is repeated in table 1, following the graphics.




               Page 48                                            GAO-12-603 IRS 2013 Budget
Interactive graphic        Figure 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with the Best
                           Practices for Comprehensiveness
                             Directions:
                             Rollover each              below to see further information on cost estimation best practices.

                                                                                                                  Overall assessment:

A comprehensive cost estimate:                                                                                    Partially meets best practices for a
                                                                                                                  comprehensive cost estimate.


Best practices characteristics            Assessment of whether best practices are met                        Effect
Includes all life-cycle                   The Modernization and Information Technology                        A life–cycle cost estimate should encompass all past
costs.                                    Services (MITS) cost estimate contains all the                      (or sunk), present, and future costs for every aspect
                                          IT needs for the program as known at the time                       of the program, regardless of funding source, includ-
                                          of the estimate. The MITS estimate cost model                       ing all government and contractor costs. Without
                                          includes labor and non labor costs as well as                       fully accounting for life-cycle costs, management
                                          government and contractor costs, but they are                       will have difficulty successfully planning program
                                          only included for fiscal year 2010 through fiscal                   resource requirements and making wise decisions.
                                          year 2013. Investment and operations and main-
                                          tenance costs are included only for the same
                                          time period. The cost model did not mention
                                          disposal costs.
                                          Partially meets
Completely defines the                    The cost model documentation only discusses                         Understanding the program—including the acquisition
program, reflects the                     the architecture and project timeline, which is                     strategy, technical definition, characteristics, system
current schedule, and is                  just part of the technical description.                             design features, and technologies to be included—is
technically reasonable.                   Partially meets                                                     key to developing a credible cost estimate. Without
                                                                                                              these data, the cost estimator will not be able to
                                                                                                              identify the technical and program parameters that
                                                                                                              will bind the cost estimate.
Has a product-oriented                    The WBS has not been modified since our 2011                        Without a WBS, the program lacks a framework to de-
work breakdown structure                  reviewa and does not include a schedule or EVM                      velop a schedule and cost plan that can easily track
(WBS), traceable to the                   reporting. It is still based on high level require-                 technical accomplishments—in terms of resources
program’s technical scope                 ments and is not standardized. However, a WBS                       spent in relation to the plan as well as completion of
at an appropriate level of                and dictionary are now part of the statement of                     activities and tasks.
detail.                                   work for the cost estimate.
                                          Partially meets
Documents all cost-                        Ground rules and assumptions are defined for                       Unless ground rules and assumptions are clearly
influencing ground rules                   each cost element in the cost model spreadsheet,                   documented, the cost estimate will not have a basis
and assumptions.                           assigned according to WBS, and reflect relevant                    for resolving potential risks. Furthermore, the estimate
                                           historical data. However, we found no evidence                     cannot be reconstructed when the original estimators
                                           that the assumptions were associated with any                      are no longer available.
                                           risk analysis or developed with input from IRS’s
                                           technical community or were approved by man-
                                           agement. The effect of budget constraints has not
                                           been identified despite the fact that the program
                                           has already experienced budget cuts.
                                           Partially meets
                             Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

                             Note: We determined the overall assessment rating by assigning the following ratings: Partially Meets – IRS provided evidence
                             that satisfies about half of the criterion.
                             a
                              GAO, Patient Protection and Affordable Care Act: IRS Should Expand Its Strategic Approach to Implementation, GAO-11-719
                             (Washington, D.C.: June 29, 2011).
                                         Page 49                                                                                       GAO-12-603 IRS 2013 Budget
Interactive graphic            Figure 2: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns
                               with the Best Practices for Being Well Documented
                               Directions:
                               Rollover each              below to see further information on cost estimation best practices.

                                                                                                                      Overall assessment:

A well documented cost estimate should:                                                                               Partially meets best practices for a
                                                                                                                      well documented cost estimate.


Best practices characteristics               Assessment of whether best practices are met                      Effect

Capture the source data                      Only some sources of data are shown in cost                       Data are the foundation of every cost estimate. The
used, the reliability of the                 model. The cost estimate does not address the                     quality of the data affects the estimate’s overall cred-
data, and how the data                       reliability of the data or if historical data was                 ibility. Depending on the data quality, an estimate
were made compatible                         made compatible with other data in the estimate.                  can range anywhere from a mere guess to a highly
with other data in the                       Partially meets                                                   defensible cost position. However, without sufficient
estimate.                                                                                                      background knowledge about the source and reliability
                                                                                                               of the data, the cost estimator cannot know with any
                                                                                                               confidence whether the data collected can be used
                                                                                                               directly or need to be modified.

Describe the calculations                    Calculations are shown in a spreadsheet cost                      (a )
and the methodology                          model. However, some of the estimates were
used to derive each ele-                     based on expert opinion with no historical data
ment’s cost.                                 provided to back up the estimates.
                                             Substantially meets

Describe how the                             Step by step calculations are shown. How-                         (a)
estimate was developed.                      ever, as mentioned above there were several
                                             subprojects that had cost estimates based on
                                             expert opinion that were hard coded into the cost
                                             model, which makes it difficult to understand how
                                             these estimates were developed.
                                             Substantially meets

Discuss the technical                        The cost model documentation only discusses                       Without a technical baseline, the cost estimate will not
baseline description.                        some of the technical baseline description.                       be based on a comprehensive program description
                                             Partially meets                                                   and will lack specific information regarding technical
                                                                                                               and program risks.

Provide evidence of                          Program officials said approval of the cost                       A cost estimate is not considered valid until manage-
management review and                        estimate was given by the Commissioner’s Of-                      ment has approved it. It is imperative that manage-
acceptance.                                  fice. However, documentation showing manage-                      ment understand how the estimate was developed,
                                             ment acceptance of the cost estimate was not                      including the risks associated with the underlying data
                                             provided.                                                         and methods.
                                             Minimally meets


                               Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

                               Note: We determined the overall assessment rating by assigning the following ratings: Minimally Meets – IRS provided evidence
                               that satisfies a small portion of the criterion, Partially Meets – IRS provided evidence that satisfies about half of the criterion,
                               Substantially Meets – IRS provided evidence that satisfies a large portion of the criterion.

                               a
                                We did not describe effects for characteristics scored as “substantially meets.”
                                           Page 50                                                                                       GAO-12-603 IRS 2013 Budget
Interactive graphic         Figure 3: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with the Best
                            Practices For Accuracy
                              Directions:
                              Rollover each              below to see further information on cost estimation best practices.

                                                                                                                     Overall assessment:

An accurate cost estimate:                                                                                           Partially meets best practices for an
                                                                                                                     accurate cost estimate.


Best practices characteristics              Assessment of whether best practices are met                      Effect
Produces unbiased                           The cost estimate budget was based on a high                      A cost estimate is biased if the estimated work is
results.                                    estimate as the program is in a very early stage                  overly conservative or too optimistic. Unless the
                                            and a lot of uncertainty remains. According to                    estimate is based on an assessment of the most likely
                                            IRS officials, there is a 60 to 70 percent confi-                 costs and reflects the degree of uncertainty given all
                                            dence rate that the estimate will fall between the                of the risks considered, management will not be able
                                            low and high range of cost.                                       to make informed decisions.
                                            Partially meets
Is properly adjusted for                    Inflation was not used in the cost model.                         Adjusting for inflation is important because in the
inflation.                                  Does not meet                                                     development of an estimate, cost data must be ex-
                                                                                                              pressed in like terms. If a mistake is made or the infla-
                                                                                                              tion amount is not correct, cost overruns can result.

Contains few mistakes.                      IRS did a line by line check of the estimate to                   (a )
                                            validate it. We also performed a check of the
                                            spreadsheets provided and found no
                                            errors.
                                            Fully meets
Is regularly updated to                     The IT cost estimate has not been updated since                   If a cost estimate is not updated, it can become more
reflect significant program                 October 2010, except that IRS did include actual                  difficult to analyze changes in program costs and
changes.                                    costs for fiscal year 2011. Further, documentation                collecting cost and technical data to support future
                                            did not show that staffing estimates were re-                     estimates will be hindered. Cost estimates not updated
                                            evaluated for fiscal year 2013. However, on April                 when the technical baseline changes will lack credibility.
                                            26, 2012 IRS awarded a contract to update the
                                            entire development cost estimate which includes
                                            both the IT and staffing portions.
                                            Minimally meets
Documents and explains                      Actual costs are being tracked, but the docu-                    Without a documented comparison between the cur-
variances between                           mentation does not discuss variances or lessons                  rent estimate (updated with actual costs) and the old
planned and actual costs.                   learned.                                                         estimate, cost estimators cannot determine the level
                                            Minimally meets                                                  of variance between the two estimates. That is, the
                                                                                                             estimators cannot see how well they are estimating and
                                                                                                             how the program is changing over time.

Reflects cost estimating                    The majority of the estimate was based on                         (a )
experiences from com-                       historical data.
parable programs.                           Substantially meets
                              Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

                              Note: We determined the overall assessment rating by assigning the following ratings: Does Not Meet – IRS provided no
                              evidence that satisfies any of the criterion, Minimally Meets – IRS provided evidence that satisfies a small portion of the criterion,
                              Partially Meets – IRS provided evidence that satisfies about half of the criterion, Substantially Meets – IRS provided evidence
                              that satisfies a large portion of the criterion, Fully Meets – IRS provided complete evidence that satisfies the entire criterion.
                              We did not describe effects for characteristics scored as “fully meets” or “substantially meets.”
                              a


                                          Page 51                                                                                       GAO-12-603 IRS 2013 Budget
Interactive graphic          Figure 4: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with the Best
                             Practices for Credibility
                              Directions:
                              Rollover each              below to see further information on cost estimation best practices.

                                                                                                                   Overall assessment:

A credible cost estimate includes:                                                                                 Minimally meets best practices for a
                                                                                                                   credible cost estimate.


Best practices characteristics             Assessment of whether best practices are met                       Effect
A sensitivity analysis                     Each element of the cost estimate is presented                     Without sensitivity analysis that reveals how the cost
that identifies a range of                 as a high, low, and most likely range of costs.                    estimate is affected by a change in a single assump-
possible costs based on                    However, it is not clear how each changing each                    tion, the cost estimator will not fully understand which
varying inputs.                            variable would affect the overall total cost.                      variable most affects the cost estimate.
                                           Minimally meets
A risk and uncertainty                     Each element of the cost estimate is presented                     For management to make good decisions, the pro-
analysis.                                  with a high, low, and most likely range of costs.                  gram estimate must reflect the degree of uncertainty,
                                           However, a comprehensive risk and uncertainty                      so that a level of confidence can be given about the
                                           analysis was not completed.                                        estimate. Having a range of costs around a point
                                                                                                              estimate is more useful to decision makers because it
                                           The program has already experienced a reduced                      conveys the level of confidence in achieving the most
                                           budget in fiscal year 2012. The IRS requested                      likely cost and also informs them on cost, schedule,
                                           $473 million, but the request was not funded, so                   and technical risks.
                                           IRS revised its fiscal year 2012 spending plan
                                           to $332.2 million from HHS funds. However, the
                                           IRS has not considered the risk of future budget
                                           reductions on the estimate. By not risk adjusting
                                           the estimate, the IRS risks either running behind
                                           schedule or incurring more costs to maintain the
                                           schedule.
                                           Minimally meets

Cross-checking of major                    No evidence of any cross-checks was found in                       One way to reinforce the credibility of the cost esti-
cost elements.                             the cost estimate documentation.                                   mate is to see whether applying a different method
                                           Does not meet                                                      produces similar results. The main purpose of cross-
                                                                                                              checking is to determine whether alternative methods
                                                                                                              produce similar results. If so, then confidence in the
                                                                                                              estimate increases, leading to greater credibility.

A comparison to an in-                     On April 26, 2012, IRS awarded a contract to up-                   A program estimate that has not been reconciled with
dependent cost estimate                    date the PPACA cost estimate. The contract was                     an independent cost estimate has an increased risk
conducted by another                       provided and closely matches the best practices                    of proceeding underfunded because an independent
organization.                              of the GAO cost guide. IRS officials told us they                  cost estimate provides an objective and unbiased
                                           plan to use the IRS Estimation Program Office                      assessment of whether the program estimate can be
                                           (EPO) to perform validation of the revised cost es-                achieved.
                                           timate from the contractor. Having the EPO create
                                           an independent cost estimate to validate the hired
                                           cost estimating contractor will provide assurance
                                           that the delivered cost estimate is high quality.
                                           Minimally meets
                              Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

                              Note: We determined the overall assessment rating by assigning the following ratings: Does Not Meet – IRS provided no
                              evidence that satisfies any of the criterion, Minimally Meets – IRS provided evidence that satisfies a small portion of the criterion.

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                                              The following table outlines our assessment of the extent to which IRS’s
                                              Fiscal Year 2013 PPACA cost estimate for new initiatives meet best
                                              practices. This information is also depicted in the previous figures 1-4.

Table 1: How IRS’s Fiscal Year 2013 PPACA Cost Estimate Aligns with Best Practices Outlined in the GAO Cost Guide

Best practices                    Overall                 Assessment of whether best
characteristics                   assessment              practices are met                           Effect
A comprehensive cost              Partially meets best
estimate:                         practices for a
                                  comprehensive cost
                                  estimate
Includes all life-cycle costs.                            The Modernization and Information           A life-cycle cost estimate should
A life-cycle cost estimate                                Technology Services (MITS) cost             encompass all past (or sunk),
provides a complete and                                   estimate contains all the IT needs for      present, and future costs for every
structured accounting of all                              the program as known at the time of         aspect of the program, regardless of
resources and associated cost                             the estimate. The MITS estimate cost        funding source, including all
elements required to develop,                             model includes labor and non labor          government and contractor costs.
produce, deploy, and sustain a                            costs as well as government and             Without fully accounting for life-cycle
particular program. It should                             contractor costs, but they are only         costs, management will have difficulty
cover the inception of the                                included for fiscal year 2010 through       successfully planning program
program through its                                       fiscal year 2013. Investment and            resource requirements and making
retirement.                                               operations and maintenance costs are        wise decisions.
                                                          included only for the same time period.
                                                          The cost model did not mention
                                                          disposal costs. (Partially meets.)


Completely defines the                                    The cost model documentation only           Understanding the program—
program, reflects the current                             discusses the architecture and project      including the acquisition strategy,
schedule, and is technically                              timeline, which is just part of the         technical definition, characteristics,
reasonable.                                               technical description. (Partially meets.)   system design features, and
The cost estimate should be                                                                           technologies to be included—is key
based on a documented                                                                                 to developing a credible cost
technical baseline description,                                                                       estimate. Without these data, the cost
which provides a common                                                                               estimator will not be able to identify
definition of the program,                                                                            the technical and program
including detailed technical,                                                                         parameters that will bind the cost
program, and schedule                                                                                 estimate.
descriptions of the system.




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Best practices                    Overall                 Assessment of whether best
characteristics                   assessment              practices are met                          Effect
Has a product-oriented work                               The WBS has not been modified since        Without a WBS, the program lacks a
                                                                           a
breakdown structure (WBS),                                our 2011 review and does not include       framework to develop a schedule and
traceable to the program’s                                a schedule or EVM reporting. It is still   cost plan that can easily track
technical scope at an                                     based on high level requirements and       technical accomplishments—in terms
appropriate level of detail.                              is not standardized. However, a WBS        of resources spent in relation to the
A WBS provides a basic                                    and dictionary are now part of the         plan as well as completion of
framework for a variety of                                statement of work for the upcoming         activities and tasks.
related activities like                                   new cost estimate. (Partially meets.)
estimating costs, developing
schedules, identifying
resources and potential risks,
and providing the means for
measuring program status
using earned value
management (EVM). It is
product-oriented if it allows a
program to track cost and
schedule by defined
deliverables, such as a
hardware or software
component.
Documents all cost-influencing                            Ground rules and assumptions are           Unless ground rules and assumptions
ground rules and                                          defined for each cost element in the       are clearly documented, the cost
assumptions.                                              cost model spreadsheet, assigned           estimate will not have a basis for
                                                          according to WBS, and reflect relevant     resolving potential risks. Furthermore,
                                                          historical data. However, we found no      the estimate cannot be reconstructed
Cost estimates are typically                              evidence that the assumptions were         when the original estimators are no
based on limited information                              associated with any risk analysis or       longer available.
and therefore need to be                                  developed with input from IRS’s
bound by ground rules and                                 technical community or were approved
assumptions. Ground rules                                 by management. The effect of budget
are a set of estimating                                   constraints has not been identified
standards that provide                                    despite the fact that the program has
guidance and common                                       already experienced budget cuts.
definitions, while assumptions                            (Partially meets.)
are judgments about past,
present, or future conditions
that may affect the estimate.
Any risks associated with
assumptions should be
identified and traced to
specific WBS elements.
A well documented cost            Partially meets best
estimate should:                  practices for a well
                                  documented cost
                                  estimate.




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Best practices                     Overall              Assessment of whether best
characteristics                    assessment           practices are met                            Effect
Capture the source data used,                           Only some sources of data are shown          Data are the foundation of every cost
the reliability of the data, and                        in cost model. The cost estimate does        estimate. The quality of the data
how the data were made                                  not address the reliability of the data or   affects the estimate’s overall
compatible with other data in                           if historical data was made compatible       credibility. Depending on the data
the estimate.                                           with other data in the estimate.             quality, an estimate can range
Data should be collected from                           (Partially meets.)                           anywhere from a mere guess to a
primary sources. The source,                                                                         highly defensible cost position.
content, time, and units should                                                                      However, without sufficient
be adequately documented.                                                                            background knowledge about the
Further, data should be                                                                              source and reliability of the data, the
analyzed to determine                                                                                cost estimator cannot know with any
accuracy and reliability, and to                                                                     confidence whether the data
identify cost drivers.                                                                               collected can be used directly or
                                                                                                     need to be modified.
                                                                                                     b
Describe the calculations and                           Calculations are shown in a                  ()
the methodology used to                                 spreadsheet cost model. However,
derive each element’s cost.                             some of the estimates were based on
Documentation should                                    expert opinion with no historical data
describe what calculation                               provided to back up the estimates.
methods are used, as well as                            (Substantially meets.)
how they were applied, and
explain any anomalies.
                                                                                                     b
Describe how the estimate                               Step by step calculations are shown.   ()
was developed.                                          However, as mentioned above there
The data supporting the                                 were several subprojects that had cost
estimate should be available                            estimates based on expert opinion that
and adequately documented                               were hard coded into the cost model,
so that the estimate can be                             which makes it difficult to understand
easily updated to reflect actual                        how these estimates were developed.
costs or program changes.                               (Substantially meets.)
Discuss the technical baseline                          The cost model documentation only            Without a technical baseline, the cost
description.                                            discusses some of the technical              estimate will not be based on a
A technical baseline                                    baseline description. (Partially meets.)     comprehensive program description
description provides a                                                                               and will lack specific information
common definition of the                                                                             regarding technical and program
program, including detailed                                                                          risks.
technical, program, and
schedule descriptions of the
system, for a cost estimate to
be built on. The data in the
technical baseline should be
consistent with the cost
estimate.




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Best practices                   Overall                 Assessment of whether best
characteristics                  assessment              practices are met                         Effect
Provide evidence of                                      Program officials said approval of the    A cost estimate is not considered
management review and                                    cost estimate was given by the            valid until management has approved
acceptance.                                              Commissioner’s Office. However,           it. It is imperative that management
There should be a briefing to                            documentation showing management          understand how the estimate was
management, including a clear                            acceptance of the cost estimate was       developed, including the risks
explanation of how the cost                              not provided. (Minimally meets.)          associated with the underlying data
estimate was derived.                                                                              and methods.
Management’s acceptance of
the cost estimate should be
documented.
An accurate cost estimate:       Partially meets best
                                 practices for an
                                 accurate cost
                                 estimate.
Produces unbiased results.                               The cost estimate budget was based        A cost estimate is biased if the
Cost estimates should have                               on a high estimate as the program is in   estimated work is overly conservative
an uncertainty analysis, which                           a very early stage and a lot of           or too optimistic. Unless the estimate
determines where the                                     uncertainty remains. According to IRS     is based on an assessment of the
estimate falls against the                               officials, there is a 60 to 70 percent    most likely costs and reflects the
range of all possible costs.                             confidence rate that the estimate will    degree of uncertainty given all of the
                                                         fall between the low and high range of    risks considered, management will
                                                         cost. (Partially meets.)                  not be able to make informed
                                                                                                   decisions.
Is properly adjusted for                                 Inflation was not used in the cost        Adjusting for inflation is important
inflation.                                               model. (Does not meet.)                   because in the development of an
Cost data should be adjusted                                                                       estimate, cost data must be
for inflation to ensure that                                                                       expressed in like terms. If a mistake
comparisons and projections                                                                        is made or the inflation amount is not
are valid. Data should also be                                                                     correct, cost overruns can result.
normalized to constant year
dollars to remove the effects
of inflation. Also, inflation
assumptions must be well
documented.
                                                                                                   b
Contains few mistakes.                                   IRS did a line by line check of the       ()
Results should be checked for                            estimate to validate it. We also
accuracy, double counting,                               performed a check of the
and omissions. Validating that                           spreadsheets provided and found no
a cost estimate is accurate                              errors. (Fully meets.)
requires thoroughly
understanding and
investigating how the cost
model was constructed.




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Best practices                    Overall                Assessment of whether best
characteristics                   assessment             practices are met                         Effect
Is regularly updated to reflect                          The IT cost estimate has not been         If a cost estimate is not updated, it
significant program changes.                             updated since October 2010, except        can become more difficult to analyze
The cost estimate should be                              that IRS did include actual costs for     changes in program costs and
updated to reflect significant                           2011. Further, documentation did not      collecting cost and technical data to
program changes, such as                                 show that staffing estimates were re-     support future estimates will be
changes to schedules or other                            evaluated for fiscal year 2013.           hindered. Cost estimates not updated
assumptions. Updates should                              However, on April 26, 2012 IRS            when the technical baseline changes
also reflect actual costs so                             awarded a contract to update the          will lack credibility.
that the estimate always                                 entire development cost estimate
reflects the current program                             which includes both the IT and staffing
status.                                                  portions. (Minimally meets.)
Documents and explains                                   Actual costs are being tracked but the    Without a documented comparison
variances between planned                                documentation does not discuss            between the current estimate
and actual costs.                                        variances or lessons learned.             (updated with actual costs) and the
Variances between planned                                (Minimally meets.)                        old estimate, cost estimators cannot
and actual costs should be                                                                         determine the level of variance
documented, explained, and                                                                         between the two estimates. That is,
reviewed. For any elements                                                                         the estimators cannot see how well
whose actual costs or                                                                              they are estimating and how the
schedules differ from the                                                                          program is changing over time.
estimate, the estimate should
discuss variances and lessons
learned.
                                                                                                   b
Reflects cost estimating                                 The majority of the estimate was         ()
experiences from comparable                              based on historical data. (Substantially
programs.                                                meets.)
The estimate should be based
on historical cost estimation
data and actual experiences
from other comparable
programs. These data should
be reliable and relevant to the
new program.
A credible cost estimate          Minimally meets best
includes:                         practices for a
                                  credible cost
                                  estimate.




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Best practices                     Overall              Assessment of whether best
characteristics                    assessment           practices are met                           Effect
A sensitivity analysis that                             Each element of the cost estimate is        Without sensitivity analysis that
identifies a range of possible                          presented as a high, low, and most          reveals how the cost estimate is
costs based on varying inputs.                          likely range of costs. However, it is not   affected by a change in a single
A sensitivity analysis                                  clear how changing each variable            assumption, the cost estimator will
examines how changes to key                             would affect the overall total cost.        not fully understand which variable
assumptions and inputs affect                           (Minimally meets.)                          most affects the cost estimate.
the estimate. The estimate
should identify key cost
drivers, examine their
parameters and assumptions,
and re-estimate the total cost
by varying each parameter
between its minimum and
maximum range.
A risk and uncertainty                                  Each element of the cost estimate is        For management to make good
analysis.                                               presented with a high, low, and most        decisions, the program estimate must
A risk and uncertainty analysis                         likely range of costs. However, a           reflect the degree of uncertainty, so
recognizes the potential for                            comprehensive risk and uncertainty          that a level of confidence can be
error and attempts to quantify                          analysis was not completed.                 given about the estimate. Having a
it by identifying the effects of                        The program has already experienced         range of costs around a point
changing key cost drivers.                              a reduced budget in fiscal year 2012.       estimate is more useful to decision
                                                        The IRS requested $473 million, but         makers because it conveys the level
                                                        the request was not funded so IRS           of confidence in achieving the most
                                                        revised its fiscal year 2012 spending       likely cost and also informs them on
                                                        plan to $332.2 million from HHS funds.      cost, schedule, and technical risks.
                                                        However, the IRS has not considered
                                                        the risk of future budget reductions on
                                                        the estimate. By not risk adjusting the
                                                        estimate, the IRS risks either running
                                                        behind schedule or incurring more
                                                        costs to maintain the schedule.
                                                        (Minimally meets.)
Cross-checking of major cost                            No evidence of any cross-checks was         One way to reinforce the credibility of
elements.                                               found in the cost estimate                  the cost estimate is to see whether
A cross-check is done by                                documentation. (Does not meet.)             applying a different method produces
using a different cost                                                                              similar results. The main purpose of
estimation method to see if it                                                                      cross-checking is to determine
produces similar results.                                                                           whether alternative methods produce
                                                                                                    similar results. If so, then confidence
                                                                                                    in the estimate increases, leading to
                                                                                                    greater credibility.




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Best practices                    Overall                  Assessment of whether best
characteristics                   assessment               practices are met                                     Effect
A comparison to an                                         IRS awarded a contract to update the                  A program estimate that has not been
independent cost estimate                                  PPACA cost estimate on April 26,                      reconciled with an independent cost
conducted by another                                       2012. The statement of work for this                  estimate has an increased risk of
organization.                                              contract was provided and closely                     proceeding underfunded because an
A second, independent cost                                 matches the best practices of the GAO                 independent cost estimate provides
estimate should be performed                               Cost Guide. IRS officials told us they                an objective and unbiased
by an organization outside of                              plan to use the IRS Estimation                        assessment of whether the program
the program office’s influence.                            Program Office (EPO) to perform                       estimate can be achieved.
It should be based on the                                  validation of the revised cost estimate
same technical baseline,                                   from the contractor. Having the EPO
ground rules, and                                          create an independent cost estimate to
assumptions as the original                                validate the hired cost estimating
estimate.                                                  contractor will provide assurance that
                                                           the delivered cost estimate is high
                                                           quality. (Minimally meets.)
                                           Source: GAO analysis of IRS’s Fiscal Year 2013 PPACA cost estimate and GAO-09-3SP.

                                           Note: We determined the overall assessment rating by assigning the following ratings: Does Not
                                           Meet–IRS provided no evidence that satisfies any of the criterion, Minimally Meets–IRS provided
                                           evidence that satisfies a small portion of the criterion, Partially Meets–IRS provided evidence that
                                           satisfies about half of the criterion, Substantially Meets–IRS provided evidence that satisfies a large
                                           portion of the criterion, Fully Meets–IRS provided complete evidence that satisfies the entire criterion.
                                           a
                                            GAO, Patient Protection and Affordable Care Act: IRS Should Expand Its Strategic Approach to
                                           Implementation, GAO-11-719 (Washington, D.C.: June 29, 2011).
                                           b
                                               We did not describe effects for characteristics scored as “fully meets” or “substantially meets.”




                                           Page 59                                                                              GAO-12-603 IRS 2013 Budget
Appendix IV: Description of the Internal
                                               Appendix IV: Description of the Internal
                                               Revenue Service’s Major Information
                                               Technology Investments


Revenue Service’s Major Information
Technology Investments
Table 2: The Internal Revenue Service’s 20 Major Information Technology Investments

Investment Name                                  Investment Description
Account Management Services (AMS)                This investment is intended to enhance customer support by providing applications that
                                                 enable IRS employees to access, validate, and update individual taxpayer accounts on
                                                 demand.
                                           a
Affordable Care Act (ACA) Administration         This investment allows the IRS to continue the development of new systems and
                                                 modification of existing systems required to support new tax credits as prescribed in
                                                 the Affordable Care Act.
Current Customer Account Data Engine             This investment was intended to deploy a modernized database foundation that would
(CADE)                                           replace the IRS’s Individual Master File processing system and house tax information
                                                 for more than 200 million taxpayers while providing faster return processing and
                                                 refunds. According to IRS, the Current CADE Investment ended on December 31,
                                                 2011.
CADE 2                                           This investment is intended to leverage knowledge gained from the development on
                                                 Current CADE and data from the Individual Master File to provide timely access to
                                                 authoritative individual taxpayer account information and also enhance IRS’s ability to
                                                 address technology, security, financial material weaknesses, and long-term
                                                 architectural planning and viability.
Electronic Fraud Detection System (EFDS)         This investment is intended to detect fraud at the time that tax returns are filed in order
                                                 to eliminate the issuance of fraudulent tax refunds.
e-Services (e-SVS)                               This investment is several web-based self-assisted services that are intended to allow
                                                 authorized individuals to do business with the IRS electronically.
Foreign Account Tax Compliance Act               This investment requires foreign financial institutions to report to the IRS information
(FATCA)                                          about financial accounts held by U.S. taxpayers, or foreign entities in which U.S.
                                                 taxpayers hold a substantial ownership interest as required by the FATCA.
Implement Return Review Program (RRP;            This investment, currently under development, is intended to maximize fraud detection
replaces EFDS)                                   at the time that tax returns are filed to eliminate issuance of questionable refunds.
Individual Master File (IMF)                     This investment is the authoritative data source for individual tax account data. All
                                                 other IRS information systems that process IMF data depend on output from this
                                                 source. This investment is a critical component of IRS’s ability to process tax returns.
Information Reporting and Document               This investment is intended to establish a new business information matching program
Matching (IRDM)                                  in order to increase voluntary compliance and accurate income reporting.
Integrated Customer Communication                This investment includes several projects that are intended to simplify voluntary
Environment (ICCE)                               compliance using voice response, Internet, and other computer technology such as the
                                                 Modernized Internet Employee Identification Number (Mod IEIN), which allows third
                                                 parties to act on the behalf of taxpayers.
Integrated Data Retrieval System (IDRS)          This investment is intended to provide systemic review, improve consistency in case
                                                 control, alleviate staffing needs, issue notices to taxpayers, and allow taxpayers to see
                                                 status of refunds. It is a mission-critical system used by 60,000 IRS employees.
Integrated Financial System/CORE Financial This investment is the financial system used by IRS for budget, payroll, accounts
System (IFS)                               payable/receivable, general ledger functions, and financial reporting. IRS uses this
                                           system to report on the cost of operations and to manage budgets by fiscal year.
Integrated Submission and Remittance             This investment is intended to process paper tax returns, and updates tax forms to
Processing System (ISRP)                         comply with tax law changes.
IRS End User Systems and Services (EUSS) This investment is intended to support products and services necessary for daily
                                         functions for over 100,000 IRS employees at headquarters and field sites.




                                               Page 60                                                         GAO-12-603 IRS 2013 Budget
                                           Appendix IV: Description of the Internal
                                           Revenue Service’s Major Information
                                           Technology Investments




Investment Name                                Investment Description
IRS Main Frames and Servers Services and       This investment is intended to support the design, development and deployment of
Support (MSSS)                                 server storage infrastructures, software, databases, and operating systems.
IRS Telecommunications Systems and             This investment supports IRS’s broad and local network infrastructure such as servers,
Support (TSS)                                  and switches for voice, data, and video servicing of about 1,000 IRS sites.
IRS.GOV - Portal Environment                   This investment is intended to provide web-based services such as tax filing and
                                               refund tracking, to internal and external users, such as IRS employees and other
                                               government agencies, taxpayers, and business partners.
Modernized e-File (MeF)                        This investment is intended to provide a secure web-based platform for electronic tax
                                               filing of individual and business tax and information returns by registered Electronic
                                               Return Originators.
Service Center Recognition/Image               This investment is intended to be a data capture, management, and image storage
Processing System (SCRIPS)                     system using high-speed scanning and digital imaging to convert data from the 940,
                                               941, K-1, and paper returns from Information Returns Processing, into electronic
                                               format.
                                           Source: GAO analysis of IRS data.

                                           Notes: According to IRS, major investments are defined by the Department of Treasury as those that
                                           cost $10 million in either current year or budget year, or $50 million over the 5 year period extending
                                           from the prior year through budget year +2.
                                           a
                                            IRS is implementing the Patient Protection and Affordable Care Act requirements under the
                                           investment name of ACA.




                                           Page 61                                                                GAO-12-603 IRS 2013 Budget
Appendix V: Major Information Technology
                                          Appendix V: Major Information Technology
                                          Investments with Significant Cost and
                                          Schedule Variances


Investments with Significant Cost and
Schedule Variances
                                          Of the 20 major Information Technology (IT) investments, 6 had
                                          significant variances from the planned cost or schedule estimates. 1 A
                                          significant variance is defined as 10 percent over or under the planned
                                          estimate.

                                          Affordable Care Act

Table 3: Cost and Schedule Performance Information for Affordable Care Act Administration

                                            Schedule                                                             Costs variance
                                             variance                                                                   (planned
                                      (planned days–             Schedule              Planned         Actual      costs–actual           Cost
Reporting    Planned       Projected/      projected/             variance                costs         costs              costs)     variance
months          days      actual days    actual days)         (in percent)         (in millions) (in millions)      (in millions) (in percent)
                      a              a                   a                    a
Quarter 1         —              —                   —                    —             $27.84         $19.68             $8.16         29.31
2012
                      a              a                   a                    a
Quarter 2         —              —                   —                    —              95.40          72.89             22.51         23.60
2012
                                          Source: Internal Revenue Service data.

                                          Note: Numbers may not add due to rounding.
                                          a
                                           The Internal Revenue Service did not provide us with any data on planned or actual schedule for this
                                          investment, but reported that it did not experience any variance.


                                          •     The Internal Revenue Service (IRS) officials stated that Affordable
                                                Care Act (ACA) was about 29 percent under planned cost during the
                                                first quarter of 2012 due to hardware and software acquisitions that
                                                have been postponed until later in fiscal year 2012. 2
                                          •     According to IRS officials, ACA was approximately 24 percent under
                                                planned costs during the second quarter of 2012 due to
                                                •      lower than expected labor costs, and
                                                •      a delay in the receipt of funding for this quarter.




                                          1
                                           According to IRS, major investments are defined by the Department of Treasury as those
                                          that cost $10 million in either current year or budget year, or $50 million over the 5 year
                                          period extending from the prior year through budget year +2.
                                          2
                                           IRS is implementing the Patient Protection and Affordable Care Act requirements under
                                          the investment name of ACA.




                                          Page 62                                                                  GAO-12-603 IRS 2013 Budget
                                       Appendix V: Major Information Technology
                                       Investments with Significant Cost and
                                       Schedule Variances




                                       Current Customer Account Data Engine

Table 4: Cost and Schedule Performance Information for Current Customer Account Data Engine

                                                                                                        Costs variance
                                           Schedule                                                           (planned
                                            variance                                                            costs–
                                      (planned days               Schedule      Planned      Projected       projected          Cost
Reporting       Planned    Projected/    –projected/               variance        costs         costs           costs)     variance
months             days   actual days   actual days)           (in percent) (in millions) (in millions)   (in millions) (in percent)
October 2011        549          549                       0             0         $1.95           $1.95           0.00         0.00
November            549          549                       0             0          1.95            1.95           0.00         0.00
2011
December            549          549                       0             0          1.95            1.95           0.00         0.00
2011
January 2012        549          549                       0             0          1.95            1.95           0.00         0.00
February 2012       549          549                       0             0          1.95            2.68          -0.73       -37.48
                                                                                                                                      a
March 2012          549          549                       0             0          1.95            1.97          -0.03       -1.41
                                       Source: IRS data.

                                       Note: Numbers may not add due to rounding.
                                       a
                                        Variance under 10 percent is not considered significant.


                                       •      According to IRS officials, Current Customer Account Data Engine 3
                                              (CADE) was significantly over planned costs in February 2012 due to
                                              the need for additional resources to help close down the system and
                                              redistribute hardware and software assets to other projects within the
                                              IRS.




                                       3
                                           According to IRS, the Current CADE investment ended on December 31, 2011.




                                       Page 63                                                             GAO-12-603 IRS 2013 Budget
                                       Appendix V: Major Information Technology
                                       Investments with Significant Cost and
                                       Schedule Variances




                                       Integrated Customer Communications Environment

Table 5: Cost and Schedule Performance Information for Integrated Customer Communication Environment

                                                                                                        Costs variance
                                           Schedule                                                           (planned
                                            variance                                                            costs–
                                      (planned days               Schedule      Planned      Projected       projected          Cost
Reporting       Planned    Projected/    –projected/               variance        costs         costs           costs)     variance
months             days   actual days   actual days)           (in percent) (in millions) (in millions)   (in millions) (in percent)
October 2011        303          303                       0             0         $3.74        $3.74             0.00         0.00
November            303          303                       0             0          3.74          3.74            0.00         0.00
2011
December            303          303                       0             0          3.74          2.76            0.98        26.16
2011
January 2012        303          303                       0             0          3.74          2.76            0.98        26.16
February 2012       303          303                       0             0          3.74          2.76            0.98        26.16
March 2012          303          303                       0             0          3.74          2.49            1.25        33.47
                                       Source: IRS data.

                                       Note: Numbers may not add due to rounding.


                                       •     According to IRS officials, although contractor costs were higher than
                                             originally estimated, spending on Integrated Customer
                                             Communication Environment (ICCE) was significantly less than
                                             originally planned between December 2011 and March 2012 because:
                                             •     costs associated with Foreign Account Tax Compliance Act were
                                                   removed as part of plans to create a new, separate investment for
                                                   IRS, and
                                             •     some indirect costs associated with the Federal Student Aid
                                                   activity may not have been fully reported within the financial
                                                   system.




                                       Page 64                                                           GAO-12-603 IRS 2013 Budget
                                        Appendix V: Major Information Technology
                                        Investments with Significant Cost and
                                        Schedule Variances




                                        Integrated Submission and Remittance Processing System

Table 6: Cost and Schedule Performance Information for Integrated Submission and Remittance Processing System

                                                                                                        Costs
                                            Schedule                                                    variance
                                            variance                                                    (planned
                                            (planned                                                    costs–
                                            days –          Schedule        Planned         Projected   projected    Cost
Reporting      Planned    Projected/        projected/      variance (in    costs (in       costs (in   costs) (in   variance
months         days       actual days       actual days)    percent)        millions)       millions)   millions)    (in percent)
October 2011   547        547               0               0               $0.27           $0.27       0.00         0.00
November       547        547               0               0               0.27            0.27        0.00         0.00
2011
December       547        547               0               0               0.27            0.27        0.00         0.00
2011
January 2012   547        547               0               0               0.27            0.27        0.00         0.00
                                                                    a                                                       a
February 2012 547         577               -30             -5.48           0.27            0.27        0.00         1.11
                                                                                                                            a
March 2012     547        577               -60             -10.97          0.27            0.27        0.00         1.11
                                        Source: IRS data.

                                        Note: Numbers may not add due to rounding.
                                        a
                                        Variance under 10 percent is not considered significant.


                                        •       According to IRS officials, Integrated Submission and Remittance
                                                Processing System (ISRP) was approximately 11 percent behind
                                                planned schedule as of March 2012. IRS officials stated that this
                                                variance was caused by delays in the programming requirements for
                                                two projects, which extended the projected completion date by 2
                                                months.




                                        Page 65                                                         GAO-12-603 IRS 2013 Budget
                                         Appendix V: Major Information Technology
                                         Investments with Significant Cost and
                                         Schedule Variances




                                         IRS Main Frames and Servers Services and Support

Table 7: Cost and Schedule Performance Information for IRS Main Frames and Servers Services and Support

                                                                                                          Costs variance
                                            Schedule                                                            (planned
                                             variance                                                             costs–
                                       (planned days                Schedule      Planned      Projected       projected          Cost
Reporting       Planned     Projected/    –projected/                variance        costs         costs           costs)     variance
months             days    actual days   actual days)            (in percent) (in millions) (in millions)   (in millions) (in percent)
                       a             a                       a             a             a               a                   a                a
October 2011         —             —                    —                —             —              —                   —                 —
                       a             a                       a             a             a               a                   a                a
November             —             —                    —                —             —              —                   —                 —
2011
December            498          1056                 -558           -112.05       $19.68         $19.68                 0.00              0.00
2011
January 2012        249           863                 -614           -246.59          9.84           9.84                0.00              0.00
February 2012       249           863                 -614           -246.59          9.84           9.84                0.00              0.00
March 2012          737           737                        0             0          9.84           9.84                0.00              0.00
                                         Source: IRS data.

                                         Note: Numbers may not add due to rounding.
                                         a
                                          IRS did not provide cost or schedule data for these months, but reported there were no cost or
                                         schedule issues.


                                         •     According to IRS officials, IRS Main Frames and Servers Services
                                               and Support (MSSS) was significantly behind planned schedule
                                               between December 2011 and February 2012. IRS officials stated that
                                               the delays were caused by several issues including:
                                               •     the Storage Area Network (SAN) Switch Refresh project
                                                     procurement process exceeding anticipated time frames, and
                                               •     the Modernized Infrastructure Solaris 10 & Supporting
                                                     Technologies Upgrade (MISSTU) project experienced resource
                                                     conflicts and various technical issues.




                                         Page 66                                                              GAO-12-603 IRS 2013 Budget
                                        Appendix V: Major Information Technology
                                        Investments with Significant Cost and
                                        Schedule Variances




                                        Modernized e-File

Table 8: Cost and Schedule Performance Information for Modernized e-File

                                           Schedule                                                   Costs variance
                                            variance                                                 (planned costs–
                                      (planned days            Schedule      Planned      Projected         projected          Cost
Reporting       Planned    Projected/    –projected/            variance        costs         costs            costs)      variance
months             days   actual days   actual days)        (in percent) (in millions) (in millions)     (in millions) (in percent)
October 2011        837          837                    0             0         $62.03          $62.03              0.00         0.00
                                                                                                                                       a
November            837          837                    0             0          62.03              67.83          -5.80       -9.35
2011
                                                                                                                                       a
December            837          837                    0             0          62.03              67.83          -5.80       -9.35
2011
                                                                                                                                       a
January 2012        837          837                    0             0          62.03              67.83          -5.80       -9.35
February 2012       837          837                    0             0          62.03              68.47          -6.44       -10.39
                                                                          a
March 2012          837          837                 -61          -7.29          62.03              73.67         -11.64       -18.77
                                        Source: IRS data.

                                        Note: Numbers may not add due to rounding.
                                        a
                                         Variance under 10 percent is not considered significant.


                                        •     According to IRS, Modernized e-File (MeF) is approximately 19
                                              percent over planned costs in February and March 2012 due to a
                                              number of unanticipated and unplanned work activities, such as,
                                              performance testing and the purchase of additional hardware and
                                              software.




                                        Page 67                                                             GAO-12-603 IRS 2013 Budget
Appendix VI: GAO Products with Open
                                            Appendix VI: GAO Products with Open Matters
                                            for Congress and Recommendations to the IRS
                                            Regarding Tax Administration


Matters for Congress and Recommendations
to the IRS Regarding Tax Administration
                                            Thirty-three GAO products contain 10 matters for Congress and 96
                                            recommendations to the Internal Revenue Service (IRS). Thirty-two
                                            increase revenue, 7 increase savings, 16 increase both savings and
                                            revenue, and 51 have indirect financial benefits.

Table 9: List of Open Matters for Congress and Recommendations to IRS That Could Result In Potential Savings or Increased
Revenues

                                                                                                                      Potential
                                                                       Website for current status of matters and/or   financial
Report title and number                                                recommendations                                impact
Detecting abusive tax avoidance transactions
Abusive Tax Avoidance Transactions: IRS Needs Better Data to Inform    http://www.gao.gov/products/GAO-11-493         IR, IFB
Decisions about Transactions (GAO-11-493)
Enhancing budget requests
IRS Budget 2012: Extending Systematic Reviews of Spending Could        http://www.gao.gov/products/GAO-11-547         IS
Identify More Savings Over Time (GAO-11-547)
Enhancing collection of user fees
User Fees: Additional Guidance and Documentation Could Further         http://www.gao.gov/products/GAO-12-193         IFB
Strengthen IRS’s Biennial Review of Fees (GAO-12-193)
Enhancing electronic filing
E-Filing Tax Returns: Penalty Authority and Digitizing More Paper      http://www.gao.gov/products/GAO-12-33          IS, ISR,
Return Data Could Increase Benefits (GAO-12-33)                                                                       IFB
Electronic Tax Return Filing: Improvements Can Be Made before          http://www.gao.gov/products/GAO-11-344         IS, IFB
Mandate Becomes Fully Implemented (GAO-11-344)
Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer    http://www.gao.gov/products/GAO-09-1026        ISR
Service and Enforcement for the 2010 Filing Season (GAO-09-1026)
Tax Administration: 2007 Filing Season Continues Trend of              http://www.gao.gov/products/GAO-08-38          ISR
Improvement, but Opportunities to Reduce Costs and Increase Tax
Compliance Should Be Evaluated (GAO-08-38)
Enhancing electronic filing and improving accuracy of paid
preparers
Tax Administration: Many Taxpayers Rely on Tax Software and IRS        http://www.gao.gov/products/GAO-09-297         IFB
Needs to Assess Associated Risks (GAO-09-297)
Enhancing internal controls
Management Report: Improvements Are Needed to Enhance the              http://www.gao.gov/products/GAO-11-494R        IS, IFB
Internal Revenue Service’s Internal Controls and Operating
Effectiveness (GAO-11-494R)
Enhancing taxpayer services
2011 Tax Filing: Processing Gains, but Taxpayer Assistance Could Be    http://www.gao.gov/products/GAO-12-176         ISR
Enhanced by More Self-Service Tools (GAO-12-176)
Expanding use of math error authority or third party data
2011 Tax Filing: IRS Dealt with Challenges to Date but Needs           http://www.gao.gov/products/GAO-11-481         IR
Additional Authority to Verify Compliance (GAO-11-481)




                                            Page 68                                                  GAO-12-603 IRS 2013 Budget
                                            Appendix VI: GAO Products with Open Matters
                                            for Congress and Recommendations to the IRS
                                            Regarding Tax Administration




                                                                                                                      Potential
                                                                       Website for current status of matters and/or   financial
Report title and number                                                recommendations                                impact
Recovery Act: IRS Quickly Implemented Tax Provisions, but Reporting    http://www.gao.gov/products/GAO-10-349         ISR
and Enforcement Improvements Are Needed (GAO-10-349)
Tax Administration: IRS’s 2008 Filing Season Generally Successful      http://www.gao.gov/products/GAO-09-146         ISR
Despite Challenges, although IRS Could Expand Enforcement during
Returns Processing (GAO-09-146)
2009 Tax Filing Season: IRS Met Many 2009 Goals, but Telephone         http://www.gao.gov/products/GAO-10-225         IR, ISR
Access Remained Low, and Taxpayer Service and Enforcement Could
Be Improved (GAO-10-225)
Implementing Information Reporting and Document Matching
(IRDM) system
IRS Management: Cost Estimate for New Information Reporting System http://www.gao.gov/products/GAO-12-59              IFB
Needs to be Made More Reliable (GAO-12-59)
Information Reporting: IRS Could Improve Cost Basis and Transaction    http://www.gao.gov/products/GAO-11-557         IFB
Settlement Reporting Implementation (GAO-11-557)
Implementing Patient Protection and Affordable Care Act (PPACA)
Patient Protection and Affordable Care Act: IRS Should Expand Its      http://www.gao.gov/products/GAO-11-719         IFB
Strategic Approach to Implementation (GAO-11-719)
Improving corporate tax compliance
Tax Gap: Actions Needed to Address Noncompliance with S-               http://www.gao.gov/products/GAO-10-195         IR, IFB
Corporation Tax Rules (GAO-10-195)
Improving individual or corporate tax compliance
Financial Derivatives: Disparate Tax Treatment and Information Gaps    http://www.gao.gov/products/GAO-11-750         IFB
Create Uncertainty and Potential Abuse (GAO-11-750)
Federal Tax Collection: Potential for Using Passport Issuance to       http://www.gao.gov/products/GAO-11-272         IR
Increase Collection of Unpaid Taxes (GAO-11-272)
Improving international tax administration
Tax Administration: IRS’s Information Exchanges with Other Countries   http://www.gao.gov/products/GAO-11-730         IFB
Could Be Improved through Better Performance Information
(GAO-11-730)
Improving management of information technology (IT) investments
Investment Management: IRS Has a Strong Oversight Process but          http://www.gao.gov/products/GAO-11-587         IS, IFB
Needs to Improve How It Continues Funding Ongoing Investments
(GAO-11-587)
Improving real estate tax compliance
Tax Administration: Expanded Information Reporting Could Help IRS      http://www.gao.gov/products/GAO-10-997         IR
Address Compliance Challenges with Forgiven Mortgage Debt
(GAO-10-997)
Home Mortgage Interest Deduction: Despite Challenges Presented by      http://www.gao.gov/products/GAO-09-769         IR
Complex Tax Rules, IRS Could Enhance Enforcement and Guidance
(GAO-09-769)




                                            Page 69                                                  GAO-12-603 IRS 2013 Budget
                                          Appendix VI: GAO Products with Open Matters
                                          for Congress and Recommendations to the IRS
                                          Regarding Tax Administration




                                                                                                                                Potential
                                                                         Website for current status of matters and/or           financial
Report title and number                                                  recommendations                                        impact
Real Estate Tax Deduction: Taxpayers Face Challenges in Determining http://www.gao.gov/products/GAO-09-521                      IR
What Qualifies; Better Information Could Improve Compliance
(GAO-09-521)
Improving rental real estate compliance
Tax Gap: Actions That Could Improve Rental Real Estate Reporting         http://www.gao.gov/products/GAO-08-956                 IR
Compliance (GAO-08-956)
Improving sole proprietors’ compliance
Tax Gap: Limiting Sole Proprietor Loss Deductions Could Improve          http://www.gao.gov/products/GAO-09-815                 IFB
Compliance but Would Also Limit Some Legitimate Losses
(GAO-09-815)
Improving third party compliance
Tax Gap: IRS Could Do More to Promote Compliance by Third Parties        http://www.gao.gov/products/GAO-09-238                 IR, IFB
with Miscellaneous Income Reporting Requirements (GAO-09-238)
Improving use of whistleblower claims
Tax Whistleblowers: Incomplete Data Hinders IRS’s Ability to Manage      http://www.gao.gov/products/GAO-11-683                 IR, IFB
Claim Processing Time and Enhance External Communication
(GAO-11-683)
Increasing collection of unpaid payroll taxes
Tax Compliance: Businesses Owe Billions in Federal Payroll Taxes         http://www.gao.gov/products/GAO-08-617                 IFB
(GAO-08-617)
Increasing tax debt collection
Tax Debt Collection: IRS Needs to Better Manage the Collection           http://www.gao.gov/products/GAO-09-976                 ISR
Notices Sent to Individuals (GAO-09-976)
Promoting effective use of third-party data
Tax Gap: IRS Has Modernized Its Business Nonfiler Program but Could http://www.gao.gov/products/GAO-10-950                      IR, IFB
Benefit from More Evaluation and Use of Third-Party Data
(GAO-10-950)
Reducing tax evasion
Tax Gap: IRS Can Improve Efforts to Address Tax Evasion by Networks http://www.gao.gov/products/GAO-10-968                      IFB
of Businesses and Related Entities (GAO-10-968)

                                          Legend: IR – Increase revenue, IS – Increase savings, ISR – Increase savings and revenue, IFB –
                                          Indirect financial benefit.
                                          Source: GAO.

                                          Notes: Products with open matters and recommendations identified as of March 19, 2012. Some
                                          products may have matters and/or recommendations that do not have potential financial benefits or
                                          could be placed in different categories than provided above.




                                          Page 70                                                             GAO-12-603 IRS 2013 Budget
Appendix VII: GAO Contact and Staff
                  Appendix VII: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  James R. White, (202) 512-9110 or WhiteJ@gao.gov
GAO Contact
                  In addition to the contact named above, Libby Mixon, Assistant Director;
Staff             Mark Abraham; Amy Bowser; Dean Campbell; Mary Fike; Sairah Ijaz; Erik
Acknowledgments   Kjeldgaard; Paul Middleton; Ed Nannenhorn; Sabine Paul; Cynthia
                  Saunders; Mark Ryan; and Robyn Trotter made key contributions to this
                  report.




(450949)
                  Page 71                                          GAO-12-603 IRS 2013 Budget
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