HEARING BEFORE THE
SUBCOMMITTEE ON FINANCIAL
SERVICES
AND GENERAL GOVERNMENT
COMMITTEE ON APPROPRIATIONS
May 9, 2007
The Honorable J. Russell
George
Treasury Inspector General
for Tax Administration
STATEMENT OF
THE HONORABLE J. RUSSELL
GEORGE
TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
before the
SUBCOMMITTEE ON FINANCIAL SERVICES
AND GENERAL GOVERNMENT
COMMITTEE
ON APPROPRIATIONS
“Internal Revenue
Service FY 2008 Budget Request”
May 9, 2007
Chairman Durbin, Ranking Member Brownback,
and Members of the Subcommittee, I thank you for the opportunity to testify
today. My comments will focus on the Internal
Revenue Service’s (IRS or Service) Fiscal Year (FY) 2008 budget, the 2007
Filing Season, and, at your request, the Treasury Inspector General for Tax
Administration’s (TIGTA) FY 2008 budget request. The
IRS administers
Overview
of the IRS’ Fiscal Year 2008 Budget Request
The major component of the Department of the Treasury, IRS
has primary responsibility for administering the Federal tax system. Since this is a self-assessment system,
almost everything the Service does is in some way related to fostering
voluntary compliance with tax laws. It provides
taxpayer service programs that help millions of taxpayers to understand and
meet their tax obligations. The IRS’ resources
also provide for enforcement programs aimed at deterring taxpayers who are
inclined to evade their responsibilities, and vigorously pursuing those who
violate tax laws.
The
IRS must strive to enforce the tax laws fairly and efficiently while balancing
service and education to promote voluntary compliance and reduce taxpayer
burden. To accomplish these efforts, the
proposed FY 2008 IRS budget requests resources
of approximately $11.4 billion. Included
in this amount are approximately $11.1 billion in direct appropriations, $133.5
million from reimbursable programs, and $180 million from user fees. The direct appropriation is approximately a $657
million increase, or
6.3 percent, over the budget provided by the FY 2007 Continuing Resolution. Highlights of the increase include:
- $131 million for taxpayer
service initiatives;
- $440 million for enforcement
initiatives;
- $282 million for the IRS’
Business Systems Modernization program; and
- $60 million for critical Information
Technology (IT) infrastructure upgrades (included in the enforcement and
taxpayer service totals above).
The FY 2008 budget also includes funding to implement the
Department of the Treasury’s (Department) tax gap strategy. In September 2006, the Department
published a comprehensive plan to improve tax compliance. Additionally, delivery
of IRS programs demands a secure and modernized infrastructure capable of
fairly, effectively, and efficiently collecting taxes while minimizing taxpayer
burden. The FY 2008 budget request supports
the Service’s five-year strategic plan and the Department’s compliance
improvement strategy. The IRS’ strategic
plan goals are to improve taxpayer service, enhance enforcement of the tax law,
and modernize the Service through its people, processes and technology.
Improve
Taxpayer Service
The FY 2008 budget increases funding for taxpayer service
by $131 million. This includes $56
million for new service initiatives and $75 million for cost increases. IRS employees represent the face of the Federal
Government to more American citizens than most other government agencies. The request includes $20 million to enhance
taxpayer service through expanded volunteer income tax assistance, increased funding
for research, and implementing new technology to improve taxpayer service.
TIGTA is concerned about the taxpayer service initiative to expand the IRS’ volunteer return preparation. The IRS is requesting an additional $5 million and 46 Full Time Equivalents (FTE)[1] to expand the VITA Program. According to the IRS, this will help “expand the IRS’ volunteer return preparation, outreach and education, and asset building services to low-income, elderly, limited English proficient, and disabled taxpayers.”[2]
TIGTA believes the IRS should
proceed cautiously in its expansion efforts, given the importance of the
accuracy of tax return preparation. TIGTA
is reviewing the IRS’ Volunteer Income Tax Assistance (VITA) program as part of
our 2007 Filing Season oversight activities.
As of April 12, 2007,
TIGTA has had 39 tax returns prepared with a 56 percent accuracy rate. While the 2007 Filing Season accuracy rate is
an improvement compared to the 39 percent accuracy rate reported for the 2006
Filing Season, taxpayers still have just a 1 in 2 chance of having their tax
returns accurately prepared by VITA program volunteers.[3] TIGTA’s observations are that volunteers did
not always use the tools and information available to them when preparing
returns. There is the potential that
these resources might be put to better use by funding IRS assistance programs
that achieve better results.
The
FY 2008 IRS budget request also includes $10 million to implement the Taxpayer
Assistance Blueprint (TAB). The TAB
initiative provides additional resources for new research on the needs of
taxpayers in order to better understand the role of taxpayer service on
compliance. The research will focus on meeting
taxpayer needs by providing the right channel of communication; providing a better
understanding of taxpayer burden; understanding taxpayer needs through the
errors they make; and evaluating the impact of service on overall levels of
voluntary compliance.
In July 2005, Congress issued a conference
report requesting that the IRS develop a five-year plan for taxpayer service
activities.[4] In
November 2005, the IRS was asked to provide the report to the House and Senate
by April 14, 2006.[5] The Senate
committee report stated that the plan should outline the services the IRS
should provide to improve service to taxpayers; detail how the IRS plans to
meet the service needs on a geographic basis; and, address how the IRS would
improve taxpayer service based on reliable data. The plan was to be developed with the IRS
Oversight Board[6] and the
National Taxpayer Advocate.
The IRS conducted a comprehensive
review of its current portfolio of services to individual taxpayers to
determine which services should be provided and improved. Based on the findings of the TAB review, the
funding for this initiative would implement telephone service and Web site
enhancements.
To satisfy the report submission date of
April 14, 2006, the IRS designed the TAB as a two‑phased process. The TAB Phase I report identified strategic
improvement themes by researching IRS service relative to taxpayers’ needs and
preferences. The TAB Phase II report will
validate those themes through further research of taxpayers’ service preferences
and will develop the five-year plan for service delivery. The 2006 TAB Phase I report, issued April 24,
2006, presented strategic themes to improve education
and awareness; optimize partner services; elevate self-service options; improve
and expand training and services; and, develop performance and outcome goals
and metrics.
The
focus of the TAB initiative is on services that support the needs of individual
filers who file or should file Form 1040 series tax returns.[7] TIGTA
reviewed the development of the TAB, and found that while the majority of the information it contains
is accurate, some of the information is not accurate. The compilation of some of the data could
adversely affect IRS management decisions. For example, TIGTA noted inaccuracies in the
report related to changes in
The
inaccuracies and inconsistencies resulted primarily from the IRS not having an
effective process to ensure that all statements in the TAB Phase I report
correctly reflected the results of its research and data analyses. According to IRS officials, actions were
taken to improve the process for the validation of information included in the
TAB Phase II report. The actions included
an in-depth review to locate and verify the accuracy of all data in the
report. Verifications were also
performed to ensure the accuracy of statements and representations included in
the report. Based on these actions,
TIGTA did not make recommendations on the TAB Phase I report.
If these inconsistencies exist in the
Phase II report, the risk increases that the IRS will draw inaccurate
conclusions based on erroneous data.[9] TIGTA was unable to determine the impact the
inconsistencies may have on results outlined in the TAB Phase II report because
it was not available for review. The IRS
did not provide TIGTA with a copy of the report before it was officially
issued.
2007 Filing Season
The
2007 Filing Season appears to be progressing without major problems. As of April 28, 2007, the IRS reported that
it had received more than 125 million individual tax returns. Of those returns, more than 76 million (61
percent) were filed electronically. The
number of electronically filed tax returns is 8.7 percent higher than at the
same time last year. The IRS has issued almost
92 million refunds for a total of $209 billion.
While
the IRS has seen a growth in the number of electronically filed tax returns so
far this filing season, the number of
Free File returns is down slightly. As
of
April 28, 2007, the IRS received approximately 3.7 million tax returns through
the Free File Program, compared to approximately 3.8 million returns at the
same time last year.
Over
the past few years, TIGTA audits have shown that the IRS has improved customer
assistance in its face-to-face, toll-free telephone, tax-return processing, and
electronic services, including the IRS public Internet site (www.IRS.gov).[10]
Use of
IRS.gov is up with over 133 million visits to the Web site, while the Taxpayer
Assistance Centers (TACs) have received 2.2 million walk-in contacts,
approximately 3 percent more than this time last year. TIGTA made anonymous visits to TACs to
determine if taxpayers are receiving quality service, including correct answers
to their questions. The assistor level
of service in the IRS’ toll-free operations was higher than was planned, as the
IRS answered 14.6 million calls. The IRS also completed
17.5 million automated calls; a decrease of 5.4 percent from last year’s 18.5
million.
Telephone
Excise Tax Refunds
A
concern so far this filing season has been the IRS’ telephone excise tax refund
program. The IRS estimated that between
151 million and 189 million people would seek this one-time refund, including
many without a filing requirement. Taxpayers
may claim either a standard refund amount or an itemized refund for the actual
excise tax they paid on their telephone bills. By using the standard amounts individuals do
not have to assemble 41 months of telephone bills to determine the amount of their
refund. Requesting one of the standard
amounts requires the completion of only one additional line on the tax return.
The
standard amounts developed by the IRS have proved to be very effective. Through the week ending April 21, 2007, IRS
records indicate that 99.5 percent of telephone excise tax refund claims were filed
for standard amounts. However, over 28.5
percent of the total number of individual tax returns filed contained no claim
for a telephone excise tax refund, which indicates that many taxpayers may not
be aware of their opportunity to claim this refund. TIGTA is continuing to monitor the steps the
IRS is taking to address this issue.[11]
TIGTA raised concerns to the IRS
regarding the processing of returns claiming telephone excise tax refunds for
non-standard amounts. Specifically,
thresholds were set too high for the IRS to take action when taxpayers:
- claimed
refunds for more than the standard amounts but did not provide the
required Form 8913, Credit for Federal Telephone Excise Tax Paid, to
substantiate their claims.
- claimed
one amount on their tax return and a different amount on their Form 8913.
When
TIGTA reported these issues, the IRS took immediate steps to address the
problems.
TIGTA
has also raised concerns with the IRS’ implementation of its compliance
strategy related to these claims. In TIGTA’s
opinion, the dollar threshold used to identify potentially egregious claims is set
too high. As of April 28, 2007, over 51,000
such claims had been received that did not meet the IRS’ criteria for
review. The amount of telephone excise
tax refunds on these claims totaled more than $44.1 million. Over 38,000 of these claims were on tax
returns with no Schedules C, E or F,[12]
which makes the claimed amounts even more questionable. If each of the 38,000 returns claimed the
standard excise tax refund amount of $60, the total refunds would equal $2.3
million. While small business claims for
actual excise taxes paid would likely be greater than the standard amount, the
lack of corresponding Schedules C, E or F raises questions about the claims.
The IRS reported that it set
the threshold high because its examination resources are limited, and because
it believes that examinations of returns claiming the Earned Income Credit
(EITC) [13] and
other discretionary examinations will result in higher assessment rates than
examinations of the telephone excise tax refund claims. TIGTA recommended that the IRS re-examine all
options at its disposal to address significantly more inappropriate telephone
excise tax refund claims. The IRS
responded to TIGTA’s concerns, stating that it did not plan to make adjustments
to the threshold amounts.
TIGTA
has also shared concerns about paid preparers and the telephone excise tax
refund with the IRS. As of April 28,
2007, one paid preparer had filed over 1,500 returns with telephone excise tax
refund claims exceeding the standard amounts.
Only eight of this preparer’s claims have exceeded the Service’s
tolerance. TIGTA referred this preparer
to the IRS’ Criminal Investigation function.
The IRS requested information from TIGTA regarding other questionable preparers
who may be avoiding IRS scrutiny. TIGTA
provided the requested information to the Service on other preparers. Among them:
- One preparer has filed 1,019 claims
totaling over $677,000. The claims
are all under IRS’ tolerance, and most of the claims are for one of five
amounts that are repeated on the filed claims.
- Another preparer has filed 1,138
claims. The preparer has filed
returns for taxpayers in 31 different States. In addition to telephone excise tax
refund claims, over 95 percent of the returns also claim employee business
expenses.
Enhance
Enforcement of the Tax Laws
The FY 2008 budget request is designed to continue the
IRS’ emphasis on tax enforcement. The
request increases funding for enforcement by approximately $440 million, which
includes $291 million for new enforcement initiatives and $149 million in cost increases. The increase includes funding for additional
enforcement personnel. According to the
request, increased resources for the IRS’ examination and collection programs will
yield direct measurable results each year of $699 million.
Included in the IRS’ FY 2008
budget request is an initiative to improve compliance estimates and measures,
and also improve detection of non-compliance.
This enforcement initiative would
fund research studies of compliance data for new segments of taxpayers needed
to update existing estimates of reporting compliance. Unlike the past, the IRS plans to conduct an
annual study of compliance among Form 1040 filers based on a smaller sample
size than the 2001 National Research Program study.
TIGTA reviewed the tax gap estimates that
were developed from the 2001 National Research Program data and concluded that the
IRS still does not have sufficient information to completely and accurately
assess the overall tax gap and voluntary compliance rate. Although having new information about Tax Year
(TY) 2001 individual taxpayers is an improvement when compared to the much
older TY 1988 information from the last major compliance study, some important individual
compliance information remains unknown.
Additionally, although individuals comprise the largest segment of
taxpayers and were justifiably studied first, no new information is available about
employment, small corporate, large corporate and other compliance
segments. With no firm plans for further
studies or updates in many areas of the tax gap, the current tax gap estimate
is an unfinished picture of the overall tax gap and compliance rate.
The IRS’ FY 2008 budget request also includes funding for
an initiative to improve compliance among small business and self-employed
taxpayers in the areas of reporting, filing, and payment by increasing audits
of high-risk tax returns, collecting unpaid taxes, and investigating and, where
appropriate, prosecuting persons who have evaded taxes. According to the budget request, this initiative
would produce $144 million in additional annual enforcement revenue, once newly
hired employees reach their full performance potential in FY 2010.
Modernize
the IRS through Its People, Processes and Technology
The
IRS must optimally manage its resources, business processes, and technology
systems to effectively and efficiently support its service and enforcement
mission. The IRS’ FY 2008 budget request
includes initiatives to update critical information technology infrastructure
($60 million), and to enhance the IRS’ Computer Security Incident Response Center (CSIRC)
and its network infrastructure security ($21 million).
Upgrading the Service’s critical IT infrastructure initiative
would include upgrading equipment that has exceeded its life cycle. According to the budget request, failure to
replace the IRS’ IT infrastructure will lead to increased maintenance costs and
increase the risk of disrupting business operations. Planned expenditures in FY 2008 include
replacing desktop computers, automated call distributor hardware, mission
critical servers, and Wide Area Network/Local Area Network routers and
switches.
Enhancing the CSIRC would require $13.1 million to allow
the CSIRC to keep pace with the ever-changing security threat environment
through improved detection and analysis capability, improved forensics, and increased
capacity to identify and respond to potential intrusions before they occur. An additional $7.9 million would fund
enhancements to the IRS’ network infrastructure security, providing the
capability to perform continuous monitoring of the security of operational
systems, using security tools, tactics, techniques, and procedures to perform network
security compliance monitoring of all IT assets on the network.
Less than two months ago, TIGTA reported that IRS employees reported the loss or theft of
at least 490 computers and other sensitive data in 387 separate incidents. Employees reported 296 (76 percent) of the
incidents to the TIGTA Office of Investigations but not to the CSIRC. In addition, employees reported 91 of the
incidents to the CSIRC; however, 49 of these were not reported to TIGTA’s
Office of Investigations. IRS procedures
require employees to report lost or stolen computers to both the IRS CSIRC and
to TIGTA’s Office of Investigations.
TIGTA reported that coordination was inadequate between the CSIRC and
TIGTA’s Office of Investigations to identify the full scope of the losses.[14]
Prior to the Department of Veterans
Affairs data loss incident in May 2006, the CSIRC had not placed sufficient
emphasis on identifying actual taxpayers potentially affected by lost or stolen
computers. TIGTA’s Office of
Investigations did investigate many of these incidents but focused on criminal aspects
(e.g., identifying the perpetrator and recovering the stolen equipment).
On July 7, 2006,
the Chief, Mission Assurance and Security Services, issued a memorandum that re-emphasized
reporting requirements and stated that all computer security incidents shall be
reported to the CSIRC and to front-line managers. In addition, any incident involving physical
loss of equipment that could result in unauthorized access to IRS systems or
information must also be reported to the TIGTA Office of Investigations. The IRS Commissioner had issued an earlier email
reminding all managers to safeguard personally identifiable information and to
immediately report any security incidents to the CSIRC. The email message also stated that managers
work with the CSIRC to promptly notify the TIGTA Office of Investigations when
appropriate. As a final measure to
ensure total coordination, the IRS has entered into an agreement with the TIGTA
Office of Investigations to share reports of all incidents relating to the loss
or theft of IT assets.
The Service’s FY 2008 budget
request includes an initiative to fund Business Systems Modernization. The
initiative would provide approximately $62.1 million
to continue the development and deployment of the IRS’ modernization program in
line with the recommendations identified in the IRS’ Modernization, Vision, and
Strategy. According to the request, the increase
would allow the IRS to continue progress on modernized projects, such as the
Customer Account Data Engine (CADE) and Modernized e-File (MeF).
CADE is the IRS’ lynchpin modernization project that will
replace the antiquated master file system, which is based on a 1960s
architecture. The IRS is developing CADE
in stages and expects to retire the Individual Master File in 2012. When fully operational, the CADE database will
house tax information for more than 200 million individual and business
taxpayers. Congress authorized $58 million for the
CADE in FY 2007. Through FY 2007, CADE
project release costs total about $233.9 million. The IRS initiated the CADE project in
September 1999 and began delivering releases in August 2004.
During Calendar
Year (CY) 2006, the CADE posted over 7.3 million tax returns and generated more
than $3.4 billon in refunds. This is a
significant increase over the
1.4 million tax returns posted in CY 2005 that generated refunds totaling more
than $427 million. The CADE is now in
the process of completing delivery of Release 2.2. Release 2.2 will process 2007 Filing Season tax
law revisions (Tax Year 2006) and additional tax forms.[15]
On February 27,
2007, the IRS put Release 2.2 into production, but because computer reports on
the number of returns received did not match the number of returns posted, the
CADE was turned off and tax returns were sent back to the current IRS
processing system. The IRS reports that
a major portion of Release 2.2 was successfully put into production on March 6,
2007 (seven weeks late). On the first
day, it posted over 571,000 tax returns of which 566,332 contained refunds. Because of the late start into production, the
IRS goal of using the CADE to process 33 million tax returns will not be met. According to IRS officials, the latest
estimate was that the IRS would complete the deployment of Release 2.2 by the
end of April 2007, and it would post between 16 million and 19 million returns
during the 2007 Filing Season. As of
April 27, 2007, the CADE has processed 10.3 million returns with $10.9 billion
in refunds.
From the
project’s beginning, there has been a pattern of deferring CADE requirements to
later releases and missing release deployment dates. Allowing this pattern to
continue will undermine the long-term success of the project. To meet the CADE’s
long-term computer processing demands, further consideration needs to be given
to alternative design approaches. The project design currently includes
building a computer system large enough to process the highest daily volume of
tax returns received by the IRS even though this processing capacity is needed
for only a few days each year.
Alternative design solutions, such as obtaining additional computer
resources on an interim basis or delaying the processing of some tax return
types on extremely high-volume processing days, have been considered but have
not been thoroughly developed. In
addition, based on the current design of the project, meeting storage and
processing demands may be cost prohibitive.
MeF is the future of electronic filing. It provides a single Extensible Markup Language-based
standard for filing electronic tax returns.
Standardizing the formats/ structures for all filings will allow
transmitters to submit multiple return types in the same transmission,
something that currently restrains e-file growth. In FY 2008, the IRS has scheduled to start
development and implementation of the Form 1040 on the MeF platform, which is
expected to take two years. TIGTA is
currently concluding an audit of the MeF and will report the results later this
spring.
Legislative
Proposals
The
FY 2008 budget request includes several legislative proposals that would
provide the IRS with additional enforcement tools to improve compliance. It is estimated that these proposals could
generate approximately $29 billion in revenue over the next 10 years. These proposals would expand information reporting,
improve compliance by businesses, and expand penalties. This enforcement initiative includes funding
for purchasing software and making modifications to the IRS’ IT systems, which
are necessary to implement these legislative proposals.
Treasury Inspector General for Tax
Administration Fiscal Year 2008 Budget Request
TIGTA
was created by Congress to provide independent oversight of the IRS. TIGTA’s investigations and audits protect and
promote the fair administration of the Nation’s tax system. TIGTA’s responsibilities include ensuring
that the IRS is accountable for more than $2 trillion in tax revenue received
each year. TIGTA’s investigations
protect the integrity of IRS employees, contractors, and other tax
professionals; provide for infrastructure security; and protect the Service
from external attempts to threaten or corrupt the administration of tax
laws. TIGTA conducts audits that advise
Congress, the Secretary of the Treasury, and IRS management of high-risk
issues, problems, and deficiencies related to the administration of IRS
programs and operations. TIGTA’s audit
recommendations aim to improve IRS systems and operations, while maintaining
fair and equitable treatment of taxpayers.
TIGTA’s Office of Audit (OA) provides comprehensive
coverage and oversight of all aspects of the Service’s daily operations. Audits not only focus on the economy and
efficiency of IRS functions but also ensure that taxpayers’ rights are
protected and the taxpaying public is adequately served. Overall, as of March 31, 2007, audit reports
potentially produced financial accomplishments of $579 million, and potentially
impacted approximately 379,000 taxpayer accounts in areas such as taxpayer
burden, rights, and entitlements. OA
develops an annual audit plan that communicates oversight priorities to
Congress, the Department of the Treasury, and the IRS. Emphasis is placed on mandatory coverage
imposed by the IRS
Restructuring and Reform Act of 1998[16] and other statutory authorities, as well as issues
impacting computer security, taxpayer rights and privacy, and financial-related
audits. OA’s work focuses on IRS’ major
management challenges, IRS’ progress in achieving its strategic goals,
eliminating IRS’ systemic weaknesses, and the Service’s response to the
President’s Management Agenda initiatives.
TIGTA’s mission includes the statutory responsibility to
protect the integrity of tax administration and to protect the ability of the
IRS to collect revenue for the Federal Government. To accomplish this, TIGTA’s Office of
Investigations (OI) investigates allegations of criminal violations and
administrative misconduct by IRS employees, protects the Service against
external attempts to corrupt tax administration, and ensures IRS employee
safety and IRS data and infrastructure security. Employee investigations include extortion,
theft, taxpayer abuses, false statements, financial fraud, and unauthorized
access (UNAX) of confidential taxpayer records by IRS employees. Investigations of external attempts to
corrupt tax administration include bribes offered by taxpayers to compromise
IRS employees, the use of fraudulent IRS documentation to commit crimes,
taxpayer abuse by tax practitioners, impersonation of Service employees, and
the corruption of IRS programs through procurement fraud. TIGTA assists in maintaining IRS employee and
infrastructure security by investigating incidents of sabotage, and threats or
assaults made against IRS employees, facilities, and infrastructure.
From FY 2001 to
FY 2006, TIGTA’s labor expenses have grown 22 percent from $88 million to
$107.3 million, despite a substantial reduction in FTEs (a decrease of 11
percent from 938 to 838). Labor costs currently
account for 81 percent of TIGTA’s annual budget. Labor and rent together consume approximately
87 percent of the annual budget. The FY
2007 President’s budget request for TIGTA was $136.5 million. TIGTA’s actual FY 2007 funding level was
$132.9 million, a $3.6 million reduction (2.6 percent decrease). Total resources required in FY 2008 to
support its mission are $140.6 million.[17]
Since FY 2001,
TIGTA has achieved its performance and quality expectations by implementing
several efficiency and cost-cutting initiatives. From FY 2001 to FY 2006, discretionary
spending (such as training, travel, equipment, etc.) fell nearly 21 percent
from $19.5 million to $15.4 million.
These costs currently consume only 12 percent of TIGTA’s annual budget. Through incremental FTE losses and implementation
of cost-cutting initiatives in non-labor expense categories, TIGTA has been
able to finance annual pay and labor-related benefit increases (health care,
pensions and retirement) while also maintaining the FTE level necessary to meet
performance and quality expectations.
TIGTA’s efficiency-enhancing
and cost-cutting initiatives are largely exhausted. The impact of a budget reduction in FY 2008 will
fall almost exclusively on labor and, would affect TIGTA’s capability to
provide comprehensive oversight of IRS operations. TIGTA has lost 100 FTEs because budget
increases have not been adequate to finance annual pay increases, labor-related
benefit increases, and non-labor related requirement expenses such as
contracts, rent, and equipment. Because
of decreasing budgets, TIGTA’s overall employee population has declined 12
percent from FY 2001 to FY 2006 (a decrease from 938 in FY 2001 to 825 at end
of FY 2006) and is expected to continue to decline over the foreseeable
future. In addition, 39 percent of
TIGTA’s current staff is retirement eligible through FY 2010, threatening
TIGTA’s overall ability to effectively fulfill its core missions.
Labor reductions
would reduce TIGTA’s enforcement capacity and circumscribe efforts to combat
IRS employee misconduct and external threats to the security and integrity of
IRS personnel and infrastructure. FTE
losses would result in fewer opportunities to examine high-risk areas and,
thus, reduce financial benefits from audit recommendations and impact fewer
taxpayer accounts. Losses would also
require TIGTA to curtail, delay and/or fail to initiate reviews of high-risk areas
and/or eliminate entire programs.
TIGTA must also
address human capital issues. In order
to accomplish its mission, TIGTA employees need to possess the necessary skills. Because of the increasingly modernized and
computerized IRS operating systems and environment, the most critical gaps
TIGTA faces are in the Auditor and Criminal Investigator occupations.
TIGTA also faces
the challenge of addressing increasing requests from Congress and other IRS
stakeholders in a timely and efficient manner.
In FY 2007, TIGTA has reallocated resources in order to perform
congressionally requested audits and comply with new statutory provisions. TIGTA anticipates increased congressional
interest and requests in future years.
The
FY 2008 President’s budget request for TIGTA will be used to continue to
provide critical audit and investigative services, ensuring the integrity of
tax administration on behalf of the Nation’s taxpayers. While there are a number of critical areas in
which TIGTA will provide oversight, highlights of TIGTA’s investigative and
audit priorities include:
- Adapting to the IRS’
continuously evolving operations and mitigating intensified risks
associated with modernization, outsourcing, and enforcement efforts;
- Responding to threats and
attacks against IRS personnel, property, and sensitive information;
- Improving the integrity of IRS
operations by detecting and deterring fraud, waste, abuse, or misconduct
by IRS employees;
- Conducting comprehensive audits
that include recommendations for cutting costs and enhancing IRS service
to taxpayers; and
- Informing Congress and the
Secretary of the Treasury of problems and the progress being made to resolve
them.
Total
resources needed in FY 2008 to support TIGTA’s mission are $141,753,000,
including $140,553,000 from direct appropriations and approximately $1,200,000
from reimbursable agreements. Budget
adjustments to maintain current levels in FY
2008 include $4.87 million to fund the cost of the January 2007 pay increase,
the proposed January 2008 pay raise, and non-labor related items.
I hope my
discussion of some of the FY 2008 budget and 2007 Filing Season issues will
assist you with your oversight of the IRS.
Mr. Chairman and Members of the Subcommittee, thank you for the
opportunity to share my views.