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IRS Oversight Board’s report to Congress finds overall solid level of IRS performance

April 1, 2014

The IRS Oversight Board released its Annual Report to Congress 2013, which found that, given the many challenges that IRS faced in Fiscal Year (FY) 2013—including late-enacted legislation, stopgap spending bills, sequestration, and allegations of politically-motivated targeting—it performed at an overall solid level, carrying out its balanced mission of customer service and enforcement. In addition, the Board expressed strong concern over continued cuts to the IRS’s budget, stating that such underfunding “only punishes America’s taxpayers and endangers the fiscal health of our nation and critical programs upon which Americans depend.”

In FY 2013, the Board found that, despite the Code Sec. 501(c)(4) tax exempt controversies, IRS had performed well in many areas. It achieved a successful 2013 filing season with only minor delays, even though the retroactive law changes in the American Taxpayer Relief Act of 2012 affected over 600 IRS tax products and required it to update its forms and reprogram and test its major processing systems. It made progress in addressing serious information technology and financial management weaknesses, with the result that its Business Systems Modernization program was removed from a “high-risk” list. It successfully implemented tax-related provisions of important legislation, such as the Affordable Care Act and the Foreign Account Tax Compliance Act. In addition, IRS provided for significant taxpayer burden reduction (including a simplified method to claim a home office deduction) and a retooled corporate audit approach.

Accomplishments. The Report singled out several notable achievements, including that IRS:


…secured its 14th consecutive unqualified audit opinion from the Government Accountability Office (GAO) on the IRS’s financial statements;
…surpassed the 80% goal for individual e-filing mandated in the IRS Restructuring and Reform Act of ’98, for a second year;
…transitioned to a new, secure Internet portal for use by tax professionals and taxpayers;
…initiated pilot projects for an online system to accept applications for tax exempt status under Code Sec. 501(c)(3);
…initiated the Direct Pay project, which provides taxpayers a secure means to pay their tax bills or make estimated tax payments directly from their checking or savings account at no cost;
…facilitated, through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs, the preparation of over 3.4 million federal tax returns and over 2.5 million state returns; and
…expanded the Fast Track Settlement Program to small business taxpayers, allowing them to settle issues with an Appeals Officer during an audit instead of after the audit concludes.


Cost savings. The Report also highlighted a number of efficiencies, including that IRS:


…reduced costs on contracts by $200 million;
…achieved rent savings of approximately $15.7 million by reducing office space, with an estimated $40 million in rent savings anticipated to occur once the office space reduction project is completed in FY 2014;
…eliminated the printing and mailing of selected tax packages and employee leave and earnings statements, producing savings of approximately $60 million;
…combined multiple services such as voice, video, and data onto a common Internet-based network, allowing employees to communicate more efficiently and seamlessly. This increases workplace productivity, and will save IRS up to $25 million annually by Sept. 30, 2015; and
…redesigned the employee public transportation subsidy program, producing approximately $7 million in savings.


Concerns. In the Report, the Board acknowledges that budget constraints were beginning to affect IRS performance. Level of service on IRS toll-free telephone lines fell dramatically in FY 2013, while average wait times to speak with IRS representatives increased. Audit coverage and enforcement actions such as liens, levies, and seizures declined. Post-sequestration funding for IRS was the lowest it has been since FY 2009. The Board urges Congress to restore funding to the agency.

While some progress was made, tax-related identity theft remained a major challenge and risk area for IRS. The Board also expressed concern over the large-scale turnover of senior executives in 2013 and the potential for additional attrition in the future.

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