Key Issues > Tax Administration
tax icon, source: GAO

Tax Administration

Funding the federal government largely depends upon the Internal Revenue Service’s (IRS) ability to collect taxes. In recent years, IRS has experienced declining resources and an increased workload—raising concerns about its ability to provide service to taxpayers and enforce the tax laws.

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IRS’s mission is to provide America's taxpayers with top-quality service by helping them understand and meet their tax responsibilities as well as enforce the law. The scale of IRS’s operations is significant. For example, in fiscal year 2015, IRS reported that it:

  • collected about $3.3 trillion (before tax refunds), or 93 percent of the total money the federal government received;
  • processed nearly 149 million individual tax returns and 117 million refunds;
  • provided taxpayer assistance to more than 61 million taxpayers through its toll-free telephone lines and walk-in sites and had more than 493 million visits to IRS.gov,
  • received more than 2.6 billion information returns—such as Forms W-2 and 1099—that employers and others file; and
  • examined 1.2 million individual tax returns.

Since 1990, the enforcement of tax laws has been included on GAO's High Risk list. IRS most recently estimated an average annual gross tax gap of $458 billion for 2008-2010. IRS eventually recovers part of the tax gap through enforcement actions and late payments; for 2008-2010, it estimated it would recover $52 billion, resulting in a net tax gap of $406 billion. Between fiscal years 2011 and 2016, IRS's tax enforcement funding declined by about $628 million and its enforcement staff declined by more than 10,000 workers. This decrease in staff and budget coincided with an approximately 4 percent decrease in tax collection coverage between fiscal years 2011 and 2015.
Given the many challenges facing IRS and the tax system, it is important that IRS develop a comprehensive strategy to ensure that it is best positioned to achieve its mission with available resources. Since 2014, IRS has undertaken a multi-year effort to develop a plan for the future state of tax administration—giving it the opportunity to improve taxpayer service and develop a comprehensive customer service strategy.

Deteriorating Customer Service
In fiscal year 2015, IRS provided the lowest level of telephone service compared to prior years, with only 38 percent of callers able to reach IRS staff.  Similar performance issues hindered its correspondence, online, and face-to-face services. IRS managed some service improvements in 2016. However, continued low levels of service highlight the challenges of managing IRS's operations. 

Preventing Identity Theft Refund Fraud

Contributing to IRS’s increased workload is the surge in identity theft refund fraud—which occurs when an identity thief obtains an individual’s Social Security number—among other personally identifiable information—and uses it to fil e a fraudulent tax return seeking a refund. IRS has taken steps to address such fraud, including dedicating more resources and staff for detection and prevention, as well as improving coordination with stakeholders, such as paid preparers.

Declining Budget and Increased Responsibilities

Between fiscal year 2011 and fiscal year 2016, IRS’s annual appropriations were reduced by about $900 million (7 percent).  Adjusting for inflation, IRS’s appropriations for fiscal year 2016 are near the fiscal year 2000 level (see figure).

Staffing funded by annual appropriations also declined by more than 12,000 (13 percent) between fiscal years 2011 and 2016. While resources have declined, IRS has been tasked with new responsibilities, such as implementing the:

  • Taxpayer Protection Program, which authenticates the identities of suspicious filers to prevent identity theft refund fraud;
  • Foreign Account Tax Compliance Act, which increased reporting requirements to help improve tax compliance among taxpayers with foreign accounts and cross-border transactions; and
  • Patient Protection and Affordable Care Act, which included new tax, tax credit and information reporting requirements.

IRS has taken steps to manage budget reductions, including limiting hiring and curtailing overtime. It has also used its budget flexibility to allocate resources across the agency to achieve its mission goals. However, IRS must continue to fundamentally reexamine its operations, programs, and organizational structure to determine how to most efficiently and effectively accomplish its mission.

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2015 Tax Filing SeasonThursday, January 14, 2016
Identity Theft Tax Refund FraudThursday, June 23, 2016