Bush budget shortchanges IRS, oversight board says

The Bush administration’s proposed fiscal 2005 budget will hamstring the IRS’ ability to upgrade it systems properly, the IRS Oversight Board says in a report it’s releasing today.

The president has earmarked $10.7 billion for the IRS next year, 4.8 percent more than the agency is receiving this year.

But the agency’s business systems modernization requires a larger investment to stabilize the program, the board said.

“While this program has experienced significant and unacceptable delays and cost overruns, the board firmly believes that the modernization plan cannot be allowed to fail,” the report said.

The administration has proposed $285 million, 26.5 percent less than this year. The board said this amount “will adversely affect funding in future fiscal years and force the program to take longer and cost more than necessary."

The board said funding should be set at $400 million, 3.1 percent more than this year, with only $285 million initially made available for spending.

If the IRS does not correct the program’s weaknesses, the remaining funds earmarked for modernization should not be released, the board said. This would allow the BSM fund to operate like a multiyear fund, which Congress originally envisioned. While the president’s request is a “meaningful” investment, the IRS must be able to plan into fiscal 2006 so it can deliver concrete results for taxpayers sooner rather than later.

The overall modernization plan is sound and well designed, and it is critical to the future of tax administration, the board concluded, and so should be allocated sufficient funds.

“Transition to modernization is a real cost that must be incurred. There are no shortcuts to successful modernization,” the report said.

The IRS expects the first release of its new taxpayer database, the Customer Account Data Engine, later this year. By early fiscal 2006, the IRS should be able to proceed with the remaining CADE releases as quickly as possible. This will minimize future risk and the long-term cost of modernization, the board noted.

If BSM funding is reduced to the president’s proposal, future funding likely will be adversely affected. “If that happens, the projects will drag on, risk will increase and ultimately the program will cost taxpayers much more,” the report said.

Additionally, the budget shortfall means the IRS will not be able to hire enough enforcement personnel or maintain improvements in customer service, the board said. The administration’s budget also shorts the IRS by $230 million because it fails to account for federal pay raises, rent increases and expenses that were left unfunded from previous budgets.

“As a result, the administration’s proposed increase in the IRS’ 2005 budget will erode before new employees can be hired, more taxpayer phone calls can be answered or new audits of possible tax cheats can be conducted,” the board said.

The board urged a 10 percent increase, to $11.2 billion, or $500 million more than the president’s request. Such funding would let the agency hire 3,315 enforcement officers and boost tax revenue by about $5 billion annually. That would help whittle the nation’s $311 billion tax gap, the board said.

Larger investments in enforcement now will pay for themselves many times over, not only in revenues but by reinforcing the belief that all taxpayers are paying their fair share, the board said.

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