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GAO discussed management challenges facing the Internal Revenue Service (IRS), focusing on: (1) trends in the accounts receivable inventory; (2) strategic planning; (3) financial management; (4) compliance initiatives; and (5) tax system modernization efforts. GAO noted that: (1) while IRS made significant strides in developing information on its accounts receivable, the inventory continued to increase while collections decreased; (2) IRS will collect only $23 million, or one-fourth, of its inventory if it continues its current collection strategies, and another one-fourth will be abated partly due to IRS and taxpayer errors; (3) it could not determine how much additional revenue IRS could collect through additional collection efforts due to insufficient information regarding the validity or collectibility of most of the remaining uncollected accounts; (4) IRS made several improvements to its strategic management process, and made progress in developing clear and measurable performance standards; (5) IRS established financial leadership to address its long-standing financial management problems by designating a chief financial officer, a controller, and an accounts receivable executive officer; (6) an improved budgetary condition at IRS, the prospects for greater stability, and pay reform legislation should permit increased hiring of enforcement staff to ensure taxpayer compliance; (7) IRS was in the process of modernizing its tax processing and information systems; and (8) Congress needs to ensure that IRS addresses its many challenges by questioning whether its efforts effectively address current and future problems.

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