GAO REPORTS ON THE IRS JULY 1, 1996
--------------------------- Indexing Terms -----------------------------
REPORTNUM: IAP-96-22
TITLE: Tax Policy and Administration Issue Area Plan--Fiscal Years
1996-98
DATE: 07/01/96
SUBJECT: Tax administration
Systems conversions
Information processing operations
Government collections
Taxpayers
Tax returns
Accounts receivable
Delinquent taxes
Financial management
Customer service
IDENTIFIER: IRS Tax System Modernization Program
TSM
IRS Customer Service Vision
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Cover
================================================================ COVER
General Government Division
July 1996
TAX POLICY AND ADMINISTRATION
ISSUE AREA PLAN
FISCAL YEARS 1996-98
GAO/IAP-96-22
Abbreviations
=============================================================== ABBREV
FOREWORD
============================================================ Chapter 0
As the investigative arm of Congress and the nation's auditor, the
General Accounting Office is charged with following the federal
dollar wherever it goes. Reflecting stringent standards of
objectivity and independence, GAO's audits, evaluations, and
investigations promote a more efficient and cost-effective
government; expose waste, fraud, abuse, and mismanagement in federal
programs; help Congress target budget reductions; assess financial
and information management; and alert Congress to developing trends
that may have significant fiscal or budgetary consequences. In
fulfilling its responsibilities, GAO performs original research and
uses hundreds of databases or creates its own when information is
unavailable elsewhere.
To ensure that GAO's resources are directed toward the most important
issues facing Congress, each of GAO's 32 issue areas develops a
strategic plan that describes the significance of the issues it
addresses, its objectives, and the focus of its work. Each issue
area relies heavily on input from congressional committees, agency
officials, and subject-matter experts in developing its strategic
plan.
The Tax Policy and Administration issue area's mission is to provide
the Congress, the executive branch, and the public with timely,
accurate, and objective analyses and information to improve our
nation's tax system and its administration. Accordingly, this issue
area's responsibility encompasses the revenue side of the budget--the
$1.4 trillion in tax receipts that finance federal government
operations and the $400 billion in tax expenditures used to promote
numerous social and economic objectives--as well as the federal
agency responsible for tax administration, the Internal Revenue
Service (IRS).
Our reports and testimonies have addressed subjects such as
collecting delinquent taxes, responding to taxpayers' inquiries,
modernizing IRS to achieve greater productivity and better management
of its finances, tax system reform, the growth of tax expenditures,
and narrowing the tax gap (the amount of taxes owed by individuals
and businesses, but not voluntarily paid).
This plan addresses the changes being considered to our national tax
system and its administration. The tax system is undergoing
scrutiny, as seen in the various tax reform proposals. IRS is
undergoing significant technological, organizational, and operational
changes to improve its capacity to administer the tax system. To
facilitate the management of our work, we divided the issue area into
eight key issues under which our work is planned. They are
-- IRS management and budget,
-- individual tax issues,
-- business tax issues,
-- customer service,
-- submission processing,
-- accounts receivable/collection,
-- tax expenditures and preferences, and
-- tax reform and simplification.
In the pages that follow, the planned work in these areas is
described.
Because events may significantly affect even the best of plans and
because periodic measurement of success against any plan is
essential, our planning process allows for updating and the
flexibility to respond quickly to emerging issues. If you have any
questions or suggestions about this plan, please call me at (202)
512-9110.
Lynda D. Willis
Director, Tax Policy and
Administration Issues
CONTENTS
============================================================ Chapter 1
FOREWORD
---------------------------------------------------------- Chapter 1:1
1
TABLE I: KEY ISSUES
---------------------------------------------------------- Chapter 1:2
4
TABLE II: PLANNED MAJOR WORK
---------------------------------------------------------- Chapter 1:3
8
TABLE III: GAO CONTACTS
---------------------------------------------------------- Chapter 1:4
9
TABLE I: KEY ISSUES
============================================================ Chapter 2
Issue Significance
-------------------------------------- ----------------------------------------
IRS management and budget: How can IRS IRS is in the midst of major
improve its financial, strategic, and technological, organizational,
human resource management? operational, and financial changes. It
is in the process of reorganizing and
reengineering its major processes, and,
through Tax Systems Modernization (TSM),
plans to introduce new technology to
support these and other changes directed
toward making IRS a more efficient
organization. TSM involves an investment
of billions of dollars and substantive
changes to work processes and human
resource management. In the face of
tighter budgets and increasing
congressional concern over the pace of
IRS' modernization, IRS is rethinking
its business vision and rescoping its
plans for technological, organizational,
and operational changes.
Individual tax issues: How can the tax IRS data indicate that the portion of
system for individual taxpayers be the tax gap attributable to individual
improved? taxpayers amounts to about $94 billion
per year. Of that figure, failure to
report income accounts for about $73
billion. Tax law changes as well as
changes to IRS' taxpayer guidance could
increase compliance by making it easier
for taxpayers to comply with tax laws.
Similar changes in IRS' enforcement
programs could make these programs more
effective and less intrusive on
individual taxpayers.
Business tax issues: How can the tax Businesses play a significant role in
system for business taxpayers be our tax system. They not only pay income
improved? taxes but are also responsible for
providing information to taxing
authorities about payments to
individuals and for withholding income
and social security taxes from
employees' salaries. IRS data indicate
that the portion of the tax gap
attributable to corporate taxpayers
amounts to about $33 billion per year.
Of this figure, large corporations
account for about $24 billion, and small
corporations account for about $7
billion. Businesses, particularly large
corporations, also spend considerable
sums of money resolving disputes with
IRS over audit results. IRS has
ultimately collected about 22 cents for
each $1 of proposed audit assessments of
the nation's 1,700 largest corporations.
Customer service: How can IRS improve IRS' "Customer Service Vision" guides
the way it assists taxpayers? its efforts to improve customer service.
The vision is founded on increased
accessibility, including up-front
problem identification, improved notices
and publications, telephone interaction
in lieu of correspondence, one-stop
service, and blended work groups. As
part of this effort, IRS must identify
new ways to improve service and provide
the systems to support this service.
Submission processing: How can IRS IRS' current procedures for processing
improve the way it receives and tax returns are dependent on antiquated
processes tax returns, payments, and technology, which will eventually be
related information? replaced through TSM. IRS is also
implementing alternative processes such
as electronic filing, paper scanning,
and lockboxes. Meanwhile, existing
systems and capabilities must continue
functioning. As Congress and IRS look
for cost-cutting opportunities, other
options, such as outsourcing, may
receive more attention.
--------------------------------------------------------------------------------
Objectives Focus of work
--------------------------------------- ---------------------------------------
� Evaluate IRS' plans for and � Strategic priorities, plans, and
implementation of technological, budget linkage.
organizational, and operational � Progress in managing for results and
changes. developing and employing performance
measures.
� Improve IRS' ability to deal with the � Progress in redeploying and training
human resource implications of the staff and skills enhancement.
changes. � Status of administrative and
management information systems'
� Help ensure that IRS has the development.
financial and management information to � TSM programmatic changes.
guide organizational and budget
decisions.
� Increase compliance and revenue. � Reengineered audit and nonfiler tax
assessment process.
� Reduce compliance burden to taxpayers � Effectiveness of IRS' audit selection
and administrative burden to IRS. process.
� Specific tax code provisions that
affect individuals such as married
couples.
� Training provided to auditors and the
audit techniques they use.
� Analyze ways to reduce tax � IRS efforts to improve business
noncompliance and the costs of audit compliance.
disputes. � Extent of reporting noncompliance and
ways to correct reporting barriers.
� Evaluate the compliance of businesses � Impact on businesses from overhauling
in reporting payments to others. the income tax system.
� Evaluate the impacts of tax policies
on businesses.
� Encourage efficient and customer- � IRS' efforts to improve taxpayers'
focused taxpayer assistance. access to its services.
� Recurring problems faced by customers
and taxpayers.
� Efforts to modernize to improve
customer service.
� Assess IRS' submission processing � Annual status reports on filing
activities and related modernization seasons.
efforts. � Efforts to expand electronic filing.
� Use of alternative processes such as
� Assess IRS' efforts to modernize the lockboxes.
way tax payments are processed. � Efforts to modernize paper processing
procedures and systems.
� Identify options to improve the � Outsourcing opportunities.
processing of tax returns and payments.
--------------------------------------------------------------------------------
Issue Significance
-------------------------------------- ----------------------------------------
Accounts receivable/collection: How IRS' accounts receivable has been
can IRS improve its programs for recognized by GAO and OMB as a high-
preventing identifying, reporting, and risk area, primarily because of the
collecting delinquent taxes? continued growth in receivables and IRS'
difficulties in significantly increasing
collections of delinquent tax debt.
During fiscal years 1990 through 1995,
gross receivables increased about 120
percent while collections declined about
2 percent. The accounts receivable
inventory is over $160 billion. IRS,
despite many initiatives, has made
little progress in resolving the
problems at the root of its collection
performance and is considering options
such as outsourcing.
Tax expenditures and preferences: Can Tax expenditures--tax provisions that
the purposes of tax expenditures and grant special relief to encourage
tax-exempt status be achieved more certain behaviors or to aid taxpayers in
effectively through improved design special circumstances--cost over $400
and administration or through billion of federal revenue annually. Tax
alternative mechanisms? expenditures are not subject to
systematic review, and policymakers have
few opportunities to make explicit
comparisons between tax expenditures and
federal spending programs. Improving the
effectiveness of tax expenditures can
result in significant savings. Improving
tax--exempt organizations' compliance
with tax rules can reduce unintended tax
losses and unfair competition with
taxable businesses.
Tax reform and simplification: How The current federal tax system raises
would the administration of proposed revenues equivalent to about 20 percent
alternative tax systems compare with of Gross Domestic Product and has a
that of the present system? relatively high compliance rate compared
with other countries, but it is
challenging for taxpayers and
administrators because of its scope and
complexity. Proposed alternative tax
systems, such as a flat tax, value-
added tax, or other consumption taxes,
aim to simplify the tax system and
promote economic growth and equity.
Because the various proposals are so
different from the current system, they
raise a host of issues relating to the
administration of a new system and the
transition from the current system.
--------------------------------------------------------------------------------
Objectives Focus of work
-------------------------------------- ----------------------------------------
� Improve IRS' management of accounts � Ways IRS can more effectively account
receivable and the collection for and collect taxes owed.
process. � Improved tax compliance through better
prevention methods.
� Improve the accuracy and adequacy of � Tax delinquency problems of nonwage
information. earners and financially unstable
companies.
� Improve the compliance of specific
groups of taxpayers.
� Improve effectiveness of tax � Fuel tax incentives such as ethanol.
expenditures and reduce costs. � Tax credits such as low income housing
and research and experimentation.
� Identify whether alternative � Changes resulting from tax system
mechanisms would achieve the same reform.
goals at less expense. � Exempt organizations' taxes on
unrelated business income.
� Identify the effects of changes in
tax expenditures on the treatment of
tax-exempt organizations resulting
from reforms.
� Improve IRS' administration of tax
rules governing exempt organizations.
� Describe how the designs of � Specific provisions of the current
alternative systems compare with the system.
present system. � Lessons learned from other countries'
value-added tax administration.
� Provide Congress with information on � Impact of reform proposals on federal
the impact of alternative tax systems tax administration.
on taxpayers and tax administrators. � Impact of reform proposals on tax
administration at the federal and state
levels.
� Transition issues.
--------------------------------------------------------------------------------
TABLE II: PLANNED MAJOR WORK
============================================================ Chapter 3
Issue Planned major job starts
--------------------------------------- ---------------------------------------
IRS management and budget � reconciling budget to strategic
priorities and plans
� implementation of IRS' Business
Master Plan
� programmatic implications of TSM
Individual tax � use of market segment benchmarking
issues � IRS treatment of taxpayers
Business tax � ways to reduce/identify unreported
issues income and other noncompliance
� independent contractors and possible
employee misclassifications
� effectiveness of IRS audit selection
methods for business
� monitoring corporate audit rates over
time
Customer service � accessibility of IRS services
� reengineering basic IRS processes
Submission processing � IRS capabilities for information
capture and use
� updating electronic filing usage and
problems
� status report on extent of filing
fraud
Accounts receivable/collection � review of pilot project to use
private sector debt collectors
� identifying best practices used by
other collection operations
� evaluation of IRS' automated
collection system
Tax expenditures and � evaluation of the effectiveness of
preferences selected tax expenditures
� review of unrelated business income
for tax-exempts
� effectiveness of earned income credit
program
Tax reform and simplification � impact of tax reform proposals on
taxpayers and tax administrators
� lessons learned from value-added tax
administration and other reform
efforts
� transition, in general, as related to
specific provisions of current system
� relevance of TSM to a new tax system
--------------------------------------------------------------------------------
TABLE III: GAO CONTACTS
============================================================ Chapter 4
DIRECTOR
-------------------------------------------------------- Chapter 4:0.1
Lynda D. Willis (202) 512-9110
ASSOCIATE DIRECTORS
-------------------------------------------------------- Chapter 4:0.2
Natwar M. Gandhi (202) 512-9044
James R. White (202) 512-5594
ASSISTANT DIRECTORS
-------------------------------------------------------- Chapter 4:0.3
David J. Attianese
Ralph T. Block
Harriet C. Ganson
Mark J. Gillen
Joseph E. Jozefczyk
Thomas D. Short
James A. Wozny
ASSISTANT GENERAL COUNSEL
-------------------------------------------------------- Chapter 4:0.4
M. Rachel DeMarcus
*** End of document. ***
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