This testimony discusses the Internal Revenue Service (IRS) fiscal year 2003 budget request for the 2002 tax filing season. GAO found that IRS's plans for hiring and redirecting staff may be optimistic because budgets are prepared so far in advance of the fiscal year involved. IRS assumed (1) labor and nonlabor savings of 2,287 staff years and $157.5 million and (2) additional savings of $38.5 million from better business practices. IRS's justification does not always adequately link the resources being requested and the agency's performance goals. Although IRS provided adequate support to justify the $450 million request for its multiyear capital account for business systems modernization, it did not adequately support $1.63 billion of the $1.68 billion requested for its information systems. In the area of agency performance, GAO found that IRS has generally processed returns smoothly and seen continued growth in electronic filing. The one exception to smooth processing has been the large number of errors related to the rate reduction credit. IRS has had to correct millions of returns due to the credit, and taxpayers' call about the credit have greatly increased the demand on IRS's toll-free assistance lines. IRS's performance measures provide useful information to assess its success in assisting taxpayers. However, some measures of telephone service miss important aspects of the activity being measured, and plans to begin measuring some important aspects of IRS's walk-in service have been delayed.

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