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IRS Challenges Noted by Oversight Board

By Alistair M. Nevius, J.D.

Please note: This item is from our archives and was published in 2011. It is provided for historical reference. The content may be out of date and links may no longer function.

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The IRS Oversight Board released its annual report to Congress, describing the IRS’s performance during fiscal 2010 and its progress in meeting the goals in its strategic plan.

The board describes the challenges the IRS has faced in recent years in administering new tax laws enacted to provide economic relief during the recession. The report notes that “[t]he IRS has responded well to these challenges, but the result has been to stretch the IRS’ resources thin.” An appendix to the report describes the effects recent tax law changes have had on tax administration during the 2007–2010 filing seasons. The board is concerned that there is an “under-appreciation of the importance of tax administration to the nation’s economic well-being as evidenced by a willingness to expand the complexity of the tax code with little regard for the impact on taxpayers or the resources needed by the IRS to administer the code.”

However, despite facing the challenge of implementing various new tax provisions, the IRS had “a generally successful 2010 filing season,” the report concludes.

The report identifies two systemic weaknesses that the IRS should address: the tax gap and information technology. The reports states that “[f]ailure to mitigate these weaknesses will cause long-term performance issues for the tax administration system.”

The report notes that neither the board nor the IRS can determine whether any progress is being made in reducing the tax gap. IRS estimates of the size of the tax gap are based on data from 2001 returns (although it plans to update its tax gap estimate by the end of this year). Without more frequent measurements, it is “very difficult to evaluate the overall effect of those programs on voluntary compliance.” The board plans to work with the IRS to help develop ways to evaluate the effectiveness of IRS programs.

The report also assesses the IRS’s progress on its business systems modernization program. It notes that the IRS did not receive the amount of funding it had requested for the program in fiscal 2011 and that “low funding levels represent a risk to the timely and successful delivery of the program.” In March, the board recommended that the business systems modernization program receive $333.6 million in fiscal 2012.