IRS News Release  
February 03, 1996

FY 1997 IRS Budget Request

The FY 1997 President & thorn's budget enables the IRS to continue funding its ongoing operations and providing additional resources for specific programs and investments. By applying technology and innovative approaches to management, the IRS will be able to continue making real progress improving services to taxpayers and doing its job more efficiently and effectively.

The budget request contains $359 million that will allow the IRS to continue its long-term strategy to improve voluntary compliance. This initiative is expected to generate an additional $1.5 billion in revenues in FY 1997 alone.

Serving Taxpayers Better

The last three years have seen real improvements in IRS service to taxpayers. Last year 118 million taxpayers telephoned, wrote, or visited the IRS. The IRS answered 61 million TeleTax calls (the service that offers taped information on 148 tax topics) and telephone assistors answered 39 million calls, an increase of more than 3 million over the prior year. The IRS was able to serve more taxpayers by increasing productivity, expanding hours of service, and installing call routing equipment that allows the IRS to manage telephone workload better. Last year access to certain taxpayer account information was provided nationwide, and telephone assistors were able to resolve issues with a single call 75 percent of the time.

Technology is also creating new ways for taxpayers to get the tax forms and information they need while at the same time reducing postage and printing costs. Forms are now available on CD-ROM, via fax, and from the IRS Web Site on the Internet. A recent count shows that an average of 25,000 items a day, mostly tax forms, are being downloaded from the Internet.

More filing choices are making it easier for taxpayers to file their returns. This year 23 million taxpayers can file returns with a 10-minute telephone call, without any paperwork at all. On-line filing from a home computer has increased significantly over last year, and taxpayers in 31 states can satisfy both their federal and state tax obligations with a single electronic transmission. Electronic filing of the employer & thorn's quarterly tax return (Form 941) is now available to businesses, and a TeleFile option of a simple Form 941 is being planned.

Electronic payments to taxpayers are also increasing -- most of the more than 90 million taxpayers getting refunds this year can have them directly deposited to their bank accounts. TaxLink and the Electronic Funds Transfer Payment System allows employers to pay employment and other taxes faster, more easily and more accurately. In FY 1995, more than $232 billion was deposited electronically in this way, an increase over the $6.2 billion deposited this way the prior year.

Paper tax returns have increased since 1992, but the staff needed to process these returns has decreased, and in the past 3 years we have realized a productivity improvement of 12.4 percent.

Improving Compliance

The collection yield increased by 10 percent from FY 1993 to FY 1995, despite a 9.5 percent decrease in collection staffing in FY 1994. This increase is due to IRS efforts to request payments earlier in the process, primarily through the taxpayer service function after account questions are resolved over the telephone or at the time an audit is closed. In FY 1995 the examination function secured payment of 64.2 percent of agreed tax assessments. Collections through installment agreements increased from $2.28 billion in FY 1992 to $5.4 billion in FY 1995.

Technology improvements in field collection offices are helping the IRS collect overdue accounts more efficiently. For FY 1997 the IRS is asking for an additional $150 million to improve the Integrated Collection System (ICS), which provides on-line access to current account information and improved case management. Productivity increased more than 30 percent in the IRS districts where ICS is now being used. In FY 1996 seven more districts will be using ICS, and it should be fully installed nationwide in FY 1999.

The IRS continues to refine its compliance tools by developing new compliance approaches. Programs like advanced issue resolution and advance pricing agreements allow issues to be resolved early, a practice that saves everyone time and money.

Revenue Protection

This filing season the IRS is continuing to devote substantial resources to detecting and stopping erroneous and fraudulent claims for refund. The IRS is continuing to look for suspicious returns and check social security numbers. There should be fewer delayed refunds this year as taxpayers now understand the importance of filing returns with correct social security numbers.

Last year the use of technology and a different approach to compliance helped stop erroneous refund claims. By using numerous systemic verifications, including increased checks of social security numbers, the IRS delayed 7.4 million questionable refunds -- 8 percent -- and increased compliance resources devoted to checking these refunds for accuracy. As a result, 1.5 million fewer dependents were claimed on returns, and there were approximately 100,000 fewer earned income tax credit claims than in the previous year. The criminal investigation division identified more than 4,100 refund schemes involving almost 60,000 returns and prevented the issuance of $78 million in refunds. Through pre-refund examinations, the IRS prevented the issuance of an additional $425 million in refunds.


The modernization of the current tax administration system requires an ongoing effort to improve business processes, develop a flexible organization, and update technology. The IRS & thorn's business restructuring includes consolidating 70 telephone and correspondence operations into 34, and ultimately into 23, customer service centers. Soon three computing centers will be responsible for centralized mainframe computing instead of the 12 operating today. The number of IRS regions has gone from seven to four, and the IRS is now consolidating from 63 districts to 33. The number of locations providing administrative support services has gone from over 80 to 24, with three more to be eliminated this year.

To strengthen its technical performance capabilities, the IRS is expanding the use of contractors to plan, develop and integrate its overall modernization effort, as well as accomplish important aspects of process reengineering and program management.

Maintaining Current Operations

One of the key objectives of the IRS in the coming year is to maintain operations at the current level. To do this, the IRS must fund the increased salary costs associated with the government-wide pay raise and other inflationary price increases, such as postage, printing and essential contracts. Additionally, the IRS must fund the operations needed to cover the projected increase in the number of returns filed. The amount needed just to keep the current levels of IRS operations is approximately $276 million.

Mandated Reductions

Like all federal agencies, the IRS is expected to absorb some cuts to its operating budget. As part of its response to an Executive Order mandating across the board cuts in administrative expenses, for FY 1997 the IRS is reducing administrative expenses by 5 percent or $58 million. In addition, all bureaus of Treasury are subject to a reduction in their respective funding to help balance the Federal budget over the next seven years. The IRS portion of that cut totals $80.5 million for FY 1997.


The FY 1997 IRS budget request totals $7.995 billion, an increase of $647 million (9 percent) above the 1996 authorized level.

FY 1997 BUDGET ($ in millions)

Appropriation                   FY 96 Amount    FY 97 Request
Processing, Assistance &
      Management                     $1,724           $1,780
Tax Law Enforcement                  $4,097           $4,528
Information Systems                  $1,527           $1,688
Total                                $7,348           $7,995

Full Time Equivalent Employment Levels                109,050

(See attached chart for detailed breakdown by appropriation and budget activity.)

FY 1997 Budget Summary By Appropriation and Budget Activity
(Dollars in Thousands)

                                      FY 1996         FY 1997
                                      Amount          Amount

Processing, Assisting and Management
      Management Services              105,663         111,386
      Inspection                       102,361         106,606
      Submission Processing            773,008         829,666
      Taxpayer Services                482,049         473,702
      Resources Management             260,683         258,303
             SUB TOTAL               1,723,764       1,779,663

Tax Law Enforcement
      Tax Fraud & Finan. Invest.    378,566        410,316
      Examination                     1,492,374      1,716,668
      Counsel                           370,509        228,617
      Employee Plans/Exempt Orgs.       131,330        133,389
      International                      36,168         33,718
      SOI/Compliance Research            59,720         60,420
      Collection                        792,018      1,077,617
      Document Matching                  88,922        133,158
      Resources Mgmt                     47,687        733,918
             SUB TOTAL                4,097,294      4,527,821

Information Systems
   TSM-Modernized Dvmnt                 695,000        850,000
   Modernized Operational                58,191         62,452
   Services and Compliance              668,749        670,169
   Support Services                     105,214        105,052
             SUB TOTAL                1,527,154      1,687,674
             TOTAL IRS                7,348,212      7,995,158

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