B-239510, October 17, 1991, 71 Comp.Gen. 28

B-239510, October 17, 1991, 71 Comp.Gen. 28

APPROPRIATIONS/FINANCIAL MANAGEMENT - Appropriation Availability - Purpose availability - Necessary expenses rule - Tax returns - Electronic filing DIGEST: The IRS may use its "processing tax returns" appropriation to cover the cost of a program to allow its employees to electronically file their tax returns free of charge.

Internal Revenue Service-- Use of Appropriated Funds for an Employee Electronic Tax Return Program:

This decision responds to the request of the Assistant Secretary of the Treasury (Management) concerning the Internal Revenue Service's (IRS) use of its appropriations to fund a program to enable IRS employees to electronically file their tax returns free of charge. The Assistant Secretary asks whether the IRS can establish the program as a necessary expense under its appropriation for "processing tax returns." For the reasons stated below, we conclude that IRS appropriations are available to cover program costs.

BACKGROUND

As part of its comprehensive Tax System Modernization Program, the IRS has developed a number of initiatives to improve its tax processing system. One of those initiatives, the Electronic Filing System, began in 1986 as a pilot system to test the technical feasibility and public acceptance of electronic filing. The Electronic Filing System allows tax preparers to transmit tax returns over communications lines directly to an IRS service center computer where the information is automatically edited, processed and stored. This system bypasses the manual processes for handling paper tax returns. /1/

The IRS has estimated that, in labor costs alone, each return filed electronically saves the government 35.2 cents when compared with the same return filed on paper. Further, the IRS states that it can send refunds based on electronic returns approximately three weeks sooner than it can send refunds based on paper returns. When a refund check is electronically deposited into a taxpayer's bank account, the cost savings increase to 61.2 cents per return. The IRS notes that additional savings are achieved by virtue of easier verification of returns filed electronically that it suspects are significant in amount, but difficult to quantify.

During the 1988 tax filing season, the IRS, after informal consultation with our Office, introduced a pilot program that enabled IRS employees from selected offices to electronically file their tax returns free of charge. /2/The IRS covered the cost of making electronic filings available to its employees by allocating the costs as necessary expenses under its "processing tax returns" appropriation. The IRS considered the employee program a reasonable business expense since the program publicizes the benefits of electronic filing, familiarizes employees with the Electronic Filing System through first-hand participation, and permits employees to evaluate and refine the system.

The IRS has renewed the program in each successive year since 1988 and now plans to make free electronic filing available to all of its employees. The IRS views this as a necessary administrative step towards public availability of electronic filing. The Assistant Secretary states that the nominal cost that each site must pay to establish and operate the employee electronic filing program will be more than made up for by the additional savings that will occur as a result of the increases in publicity, training, and system improvement. Furthermore, IRS officials state that by demonstrating the large-scale feasibility of the program, the agency will be able to more effectively recruit major corporations to sponsor electronic filing programs for their employees. Thus, the IRS views the expansion of its employee program as consistent with its goals to promote wider acceptance of electronic filing and, eventually, make free electronic filing available to taxpayers generally.

DISCUSSION

The IRS "processing tax returns" appropriation provides that amounts will be available "for necessary expenses of the Internal Revenue Service ... including processing tax returns ...." Pub.L. No. 101 509, 104 Stat. 1389, 1394 (1990). As a general matter, agencies may not use appropriated funds except for the purposes for which the appropriation was made. See 31 U.S.C. Sec. 1301(a). We have held that an appropriation for necessary expenses may be used for purposes not specifically set forth when the expenditure in question bears a logical relationship to the appropriation sought to be charged, is not prohibited by law, and does not more properly fall within the scope of some other appropriation. See 56 Comp.Gen. 36, 38 (1976).

Here, expenditures for the electronic filing program appear to fall within the agency's legitimate range of discretion. See, e.g., id. at 40. First, the program advances the efficiency of the processing of tax returns and, thus, has a logical relationship to the appropriation. Second, there is no law that specifically prohibits the IRS from using its appropriation for the purpose of electronically processing employee tax returns. Finally, the IRS does not have another appropriation under which the expenditure would more properly fall.

Because the Internal Revenue Code imposes on taxpayers the duty to file tax returns, 26 U.S.C. Sec. 6011, 6012, the cost of electronically filing the return would normally be considered a personal expense of the employee, not payable from appropriated funds. See 68 Comp.Gen. 502, 505 (1989). We have held, however, that appropriations are available for such expenditures, regardless of their personal nature, if the expenditure primarily benefits the government. See id. See also 65 Comp.Gen. 677, 678 (1986). In a prior decision, for example, we concluded that the Department of Interior appropriations were available to pay for exercise equipment for firefighters in the Bureau of Reclamations because the equipment was necessary for a mandatory conditioning program which would enable the employees to more effectively perform their duties. Comp.Gen. 296 (1984).

The IRS has determined that the establishment of a program enabling its employees to file their returns electronically will facilitate IRS tax collection efforts by improving its efficiency in processing returns, and will result in cost savings to the government, both in the processing of returns and the training of employees. Further, the program will allow the IRS to demonstrate the feasibility and accuracy of the technology, thus, promoting corporate sponsorship of employee electronic filing systems and encouraging the public-at-large to accept a new mechanism for filing returns. We fully recognize that IRS employees, themselves, will benefit from the program; however, their benefit is nominal and incidental to overall system improvement.

Accordingly, we will not object to the proposed expansion of the electronic filing program to all IRS employees as part of IRS' promotion to the public of new technologies to enhance effective and efficient tax collection and return processing.

/1/ See GAO Report, Tax System Modernization: Status of IRS' Input Processing Initiative, GAO/IMTEC-91-9 (December 12, 1990).

/2/ The IRS estimates that it costs a taxpayer between $15 and $40 to have a tax preparer file a tax return electronically. According to an IRS official, the average cost to the tax preparer is approximately $1 per return.