TIGTA Analyzes Taxpayer Services Resource Allocation

IMPACT ON TAXPAYERS

The IRS collects revenue to fund the Federal Government and administers the Nation's tax laws. The IRS's strategic goals are to: 1) deliver high-quality, timely service to reduce taxpayer burden and encourage voluntary compliance and 2) effectively enforce the tax laws to ensure compliance with tax responsibilities and to combat fraud. Congress appropriated $11.2 billion to the IRS in Fiscal Year (FY) 2016, including $290 million for key areas that directly support taxpayers.

WHY TIGTA DID THE AUDIT

Our analysis was performed to address congressional inquiries regarding the IRS's allocation of resources to taxpayer services. The IRS has stated that budgetary constraints resulted in the need to reduce its taxpayer service activities, including its telephone assistance, in FY 2015.

WHAT TIGTA FOUND

Overall, the amount of the IRS's Taxpayer Services appropriation increased $198 million from FY 2013 to FY 2016. However, the amount of user fee receipts that the IRS used to supplement its annual Taxpayer Services appropriation was only about $40 million of the total $421 million user fee receipts in FY 2015. This $40 million represents a 79 percent decrease since FY 2013. The IRS increased this amount to $99.6 million in FY 2016. IRS management noted that they increased the amount of user fees used to supplement the annual Operations Support appropriation in FY 2015 because appropriated funds for Operations Support were reduced in the last several fiscal years despite funding needs to implement legislative obligations.

The overall number of resources allocated by IRS executives to work taxpayer correspondence and provide telephone assistance steadily decreased from FY 2013 to FY 2015. During this period, the IRS also used a higher percentage of resources to work correspondence which contributed to a lower level of telephone assistance. For example, of the total full-time equivalents allocated, the percentage used to work correspondence increased from 47.6 percent in FY 2013 to 52.4 percent in FY 2015 which, in turn, resulted in fewer full-time equivalents available to answer telephones.

IRS officials stated that using employees to work correspondence and setting a sharply lower level of telephone assistance goal were to address the significant aging of taxpayer correspondence. However, TIGTA's analysis of correspondence inventory at the beginning of FY 2015 does not support the justification for using a higher percentage of staff to work correspondence.

IRS officials also stated that the lower level of telephone assistance in FY 2015 was due to the IRS operating for the first three months of FY 2015 under the assumption of a flat budget but ultimately received a budget cut in the budget enacted in December 2014. Lastly, IRS management stated that they allocated a higher percentage of assistors to working taxpayer correspondence to address an anticipated high volume of correspondence in FY 2015. However, the IRS acknowledged that this estimated high volume of correspondence was not received.

WHAT TIGTA RECOMMENDED

TIGTA made no recommendations in the report.

Management's complete response to the draft report is included as Appendix V.

Copies of this report are also being sent to the Internal Revenue Service managers affected by the report information. If you have any questions, please contact me or Russell P. Martin, Assistant Inspector General for Audit (Returns Processing and Account Services).

                           Table of Contents

• Business Systems Modernization: funds provide for the planning and capital asset acquisition of information technology to modernize the IRS business systems.

• Enforcement: funds provide support for the IRS's examination and collection efforts.

• Operations Support: funds provide support for functions that are essential to the overall operation of the IRS, such as infrastructure and information services.

• Taxpayer Services: funds provide support for programs that focus on helping taxpayers understand and meet their tax obligations.

 

Figure 1: Comparison of Allocated⁵and Expended Budgets

 

FYs 2013 Through 2016 (Dollars in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 8.]

 

 

 

 

Figure 2: Comparison of FTEs Allocated Versus Used for FYs 2013

 

Through 2016⁷

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 8.]

 

 

 

Congress appropriated an additional $290 million in FY 2016 for key areas that directly support taxpayers. The additional funding is the first significant increase to the IRS budget in six years. In its spending plan for these funds, the IRS informed Congress that $178.4 million⁸ would be used to increase telephone Level of Service.⁹ The remainder would be used for cybersecurity activities ($95.4 million) and identity theft prevention and refund fraud mitigation activities ($16.1 million). Figure 3 provides a breakdown of the IRS's funding for FY 2016.

 

Figure 3: IRS Budgetary Funding for FY 2016 (in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 9.]

 

 

 

The IRS creates its budget at three levels: 1) appropriation account, 2) budget activity, and 3) program activity. However, its budget is reported externally only at the appropriation account and budget activity levels. Funding requests by appropriation accounts align broadly with the IRS's strategic goals, with the budget justification sent to Congress presenting funding and FTE information at the appropriation account and budget activity levels. In addition, the Congressional Justification¹¹ provides descriptions of program activities within each budget activity. Figure 4 provides the steps the IRS takes to create its budget submission.

 

Figure 4: Steps to Create the IRS Budget Submission

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 10.]

 

 

 

The IRS has statutory authority to supplement its annual appropriations with user fee receipts received from various services provided to taxpayers.¹³ For example, the IRS charges taxpayers a user fee when taxpayers do not have the funds necessary to fully pay their taxes and instead enter into an installment agreement with the IRS. The establishment of an installment agreement is considered a special service, and taxpayers are charged a fee to offset the IRS's cost of providing the service.

The amount of user fees used to supplement annual appropriations is not fixed by appropriation account or program activity. The IRS provides a 10-year user fee projection of anticipated collections to the Department of the Treasury. Because the IRS cannot spend user fee collections until they are earned, the collections in September (end of fiscal year budget cycle) are not available for use in the current fiscal year. Thus, the IRS's estimate of available earned user fees is used for developing a tentative user fee plan. The final amount is determined each year by IRS senior leadership as it prioritizes program activities. Figure 5 shows the amount that annual appropriations were supplemented by user fees for FYs 2013 through 2016.

 

Figure 5: Amount of User Fees Used to Supplement Annual

 

Appropriations for FYs 2013 Through 2016 (in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 11.]

 

 

 

The Taxpayer Services appropriation account has two budget activities. A budget activity is a subdivision of the appropriation used for externally reporting on IRS programs. The first budget activity is Pre-Filing Taxpayer Assistance and Education. Under this activity, the IRS funds functional areas that support services to assist taxpayers with tax return preparation, including tax law interpretation, publication, production, and advocate services. Figure 6 provides an overview of some key program activities for the Pre-Filing Taxpayer Assistance and Education Budget Activity.

 

Figure 6: Pre-Filing Taxpayer Assistance and Education

 

Program Activities

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 12.]

 

 

 

 

Figure 7: Filing and Account Services Program Activities

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 13.]

 

 

 

Appropriation laws set limitations on an agency's ability to reallocate funds between appropriation accounts. In addition, appropriations approved by Congress are intended to provide a mandated framework to support agency activities. Within this framework, agencies may reprogram funds among appropriation accounts and budget activities without requesting statutory authority if the reprogramming will, among other things, augment existing programs, projects, or budget activities by no more than $5 million or 10 percent, whichever is less.

The overall objective of our analysis was to review the Customer Service resource allocation process. Our analyses were performed in the Wage and Investment Division's office in Atlanta, Georgia, during the period January through May 2016. We also interviewed officials in the CFO's organization and used nationwide data from the IRS management information system. We did not audit IRS systems to validate the accuracy and reliability of data processed in the systems. Our analyses were limited to the allocation of resources to taxpayer service. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.

Our review also identified that the overall number of FTEs allocated by IRS executives to the Accounts Management function to work taxpayer correspondence and provide telephone assistance steadily decreased from FY 2013 to FY 2015. The overall number of FTEs allocated to the Accounts Management function decreased by about 11 percent (14,757 to 13,157 FTEs) between FYs 2013 and 2015. Accounts Management function officials stated that operating decisions during the first three months of FY 2015 assumed a flat budget. However, once the final budget was received in December 2014, IRS executives cut a significant number of FTEs allocated to working taxpayer correspondence and providing telephone assistance. Accounts Management function officials planned for 14,776 FTEs to work correspondence inventory and answer telephones but only received funding for 13,200 FTEs. As such, projections for the remainder of the fiscal year needed to be adjusted to account for this reduction and the FTEs expended during the first three months of the fiscal year. For example, on January 1, 2015, the IRS reduced overtime for assistors until after the filing season.

Finally, of the reduced FTEs allocated to the Accounts Management function, the IRS continued to allocate a higher percentage of these FTEs to working correspondence than answering the telephones, which resulted in a lower telephone Level of Service. For example, the IRS emphasized the working of correspondence at the start of the 2015 Filing Season¹⁶ rather than answering telephone calls to reduce the long-term impact on correspondence inventory. Accounts Management function officials stated that they planned for a higher volume of correspondence receipts in FY 2015, but actual receipts did not match their projections. An additional reason for moving employees from answering telephones to working paper correspondence and setting a sharply lower Level of Service goal for telephone assistance was to prevent the significant aging of taxpayer correspondence. However, our analysis of correspondence¹⁷ inventory at the beginning of FY 2015 does not support the IRS's reason for using a higher percentage of FTEs to work correspondence.

Taxpayer Services Appropriation Increased

The Taxpayer Services appropriation increased by almost $198 million (9 percent) from FY 2013 to FY 2016.¹⁸ This increase includes the additional $178.4 million in funding that Congress provided the IRS to improve its telephone Level of Service. Figure 8 provides the allocated budget amount and actual expenditures for the Taxpayer Services appropriation's two budget activities.

 

Figure 8: Allocated Budget for the Taxpayer Services' Budget

 

Activities for FYs 2013 Through 2016 (Dollars in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 15.]

 

 

 

 

Figure 9: Allocated FTEs for the Taxpayer Services Appropriation's

 

Budget Activities for FYs 2013 Through 2016

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 16.]

 

 

 

Our review identified that the amount of user fees the IRS used to supplement its annual Taxpayer Services appropriation was only about $40 million of the total $421 million in FY 2015. This amount is a 79 percent decrease to the Taxpayer Services appropriation since FY 2013. Figure 10 provides the amount of user fees that were used to supplement the annual Taxpayer Services appropriation by budget activity.

 

Figure 10: Amount of User Fees Used to Supplement Taxpayer Services

 

Budget Activities for FYs 2013 Through 2015 (in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 16.]

 

 

 

 

Figure 11: Changes in Enacted Budgets for the Operations Support

 

Appropriation for FYs 2012 Through 2016 (Dollars in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 17.]

 

 

 

 

Figure 12: Overview of Legislative Requirements

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 17.]

 

 

 

User fees can be used to help meet telephone Level of Service goals

Each year, the CFO coordinates with IRS business units to develop a user fee distribution plan. The plan is reviewed and approved by senior management. For example, for the Wage and Investment Division, the proposed plan is developed by the Wage and Investment Division Commissioner and Deputy Commissioners and sent to the CFO. The user fees available for each functional area is based on the total user fees revenue available along with consideration of the other unfunded legislative mandates previously mentioned. The user fees are also used to help the IRS achieve its established Level of Service goal for each year.

Once the user fee plan is developed, the CFO then coordinates sending the proposed user fee plan to IRS executives for review and approval. The Commissioner, along with the Deputy Commissioner for Operations Support and the Deputy Commissioner for Services and Enforcement, finalize the user fee plan. It should be noted that the user fee plan also requires Department of the Treasury and Office of Management and Budget approval.

Continual Reductions Were Made in the Number of Staff That Works Taxpayer Correspondence and Provides Telephone Assistance

Our review identified that the overall number of FTEs allocated by IRS executives to answer telephones and work taxpayer correspondence decreased by approximately 11 percent (14,757 to 13,157 FTEs) between FYs 2013 and 2015. Of the total FTEs allocated to the Accounts Management function, the percentage used for working correspondence increased from 47.6 percent in FY 2013 to 52.4 percent in FY 2015 which, in turn, resulted in fewer FTEs available to answer telephones. IRS officials stated that, assuming the budget would be restored in FY 2016, they decided to reduce the long-term impact to correspondence inventory by placing more emphasis on working correspondence. Figure 13 provides the FTEs expended answering telephones and working correspondence from FYs 2013 through 2015.

 

Figure 13: Accounts Management Function FTEs Expended Answering

 

Telephones and Working Correspondence in FYs 2013 Through 2015

 

 

 

On January 1, 2015, the IRS significantly reduced overtime for assistors until after the filing season, resulting in fewer hours worked by assistors to answer telephones and work correspondence during the period when most taxpayers seek assistance. IRS management indicated that once the final budget for FY 2015 was received, overtime was reduced in response to the significant reduction in the Accounts Management function budget. Figure 14 shows the overtime expended for the 2013 through 2016 Filing Seasons.

 

Figure 14: Overtime Expended for Filing Seasons 2013 Through 2016

 

(Dollars in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 20.]

 

 

 

Customer service representatives in the Accounts Management function respond to taxpayer correspondence and provide telephone assistance. IRS management can allocate its resources among these services throughout the year based on identified trends, taxpayer needs, and other management data. However, using more FTEs to work correspondence than answering telephones can contribute to a lower telephone Level of Service. In January 2015, the IRS set a 38 percent telephone Level of Service goal after receiving a reduced funding allocation for FY 2015. Although the IRS received a reduced overall budget in FY 2015 (Figure 1), the amount appropriated and spent on taxpayer services increased (Figure 8).

The Level of Service set for FY 2015 is a 32 percentage point reduction when compared to the Level of Service set for FY 2013 and a 23 percentage point reduction compared to the Level of Service set for FY 2014. IRS management indicated that the 38 percent Level of Service goal for FY 2015 was set by the Accounts Management function and the JOC based on management decisions and factors that included:

• Allocating a higher percentage of Accounts Management function FTEs than previously allocated to work taxpayer correspondence and address the anticipated high volume of FY 2015 correspondence, as well as overaged unresolved correspondence.

• Using prior year correspondence receipt patterns and closures, per FTE, to determine the number of FTEs that would be required to work projected correspondence receipts in FY 2015.

FY 2015 correspondence inventory levels do not support the decision to allocate more FTEs to work correspondence

Our analysis of correspondence inventory at the beginning of FY 2015 does not support the IRS's justification for using a higher percentage of its FTE to work correspondence to address a significant aging of taxpayer correspondence. In fact, our review of correspondence inventory statistics at the beginning of FY 2015 showed improvements in the management of correspondence. Examples include:

• Correspondence receipts in FY 2014 increased 9 percent over FY 2013 but closures increased more (15 percent) during this period.

• The FY 2014 ending correspondence inventory was 8 percent less than the end of FY 2013.

• The percentage of overage correspondence decreased 11 percent from FY 2013 to FY 2014.

 

Figure 15: Taxpayer Correspondence Inventory Trends for

 

FYs 2013 Through 2015

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 22.]

 

 

 

• Closing FY 2015 correspondence receipts with an ending inventory volume the same as at the start of the fiscal year.

• Reducing correspondence receipts by emphasizing the need to timely respond to taxpayer correspondence.

In response to the above analysis, Accounts Management function officials noted that operating decisions for the first three months of FY 2015 assumed a flat budget. However, once the final budget was received in December 2014, IRS executives cut a significant number of FTEs allocated to work taxpayer correspondence and provide telephone assistance. As such, projections for the remainder of the fiscal year needed to be adjusted to account for this reduction along with the FTEs expended during the first three months of the fiscal year.

Reduced funding allocation and emphasis on working correspondence contributed to a lower telephone Level of Service

The IRS's reduced funding allocation in FY 2015 and emphasis on working correspondence contributed to the 38.1 percent Level of Service in FY 2015. Figure 16 illustrates the actual Level of Service, calls answered per FTE answering telephones, and average caller wait time in FYs 2013 through 2015. Management indicated that the number of calls answered per FTE has decreased because in FY 2014, the IRS began directing taxpayers to IRS.gov for refund inquiries and transcript requests. Assistors resolved these calls faster than other calls. Consequently, the remaining callers' questions were more complex and required more time.

 

Figure 16: Telephone Level of Service, Calls Answered Per FTE, and

 

Average Speed of Answer for FYs 2013 Through 2015

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 23.]

 

 

 

• 1,435 (22.9 percent) during October -- December 2014.

• 3,590 (57.3 percent) during January -- June 2015.

• 1,243 (19.8 percent) during July -- September 2015.

Figure 17 shows that from FY 2013 to FY 2015, the Average Handle Time increased by 13 percent, which indicates that customer service representatives spent more time on average assisting each taxpayer. Moreover, the IRS considers Average Handle Time when developing its plans but when it calculates the actual Level of Service measure, Average Handle Time is not one of the components. During this same three-year period, the FTEs expended on the telephones decreased by 19 percent and calls answered by assistors decreased by 40 percent. This means fewer taxpayers who called the IRS for assistance were able to speak with an assistor. Calls answered per FTE in FY 2015 decreased by 25 percent. Figure 17 provides telephone assistance trends for FYs 2013 through 2015.

 

Figure 17: Telephone Assistance Trends for FYs 2013 Through 2015

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 24.]

 

 

 

² The FY 2016 appropriation includes $290 million under Section 113, as directed by Public Law 114-113, Division E, Section 113 of the Administrative Provisions -- IRS.

³ Unspent funds from a fiscal year are maintained for five years and then expire. These funds can be used to pay bills for work performed or goods purchased during that time that were obligated on the books but not yet paid.

⁴ The specific caps for any multiyear carryover authority are contained in the enacted budget bill. In general, agencies must request Office of Management and Budget approval of carryover amounts.

⁵ Allocated includes amount enacted by Congress, user fees, and interagency transfers (transfer within the agency).

⁶ A measure of labor hours. One FTE equals eight hours multiplied by the number of compensable days in a fiscal year. For FY 2015, one FTE was equal to 2,088 staff hours. For FY 2016, one FTE was equal to 2,096 staff hours.

⁷ The total used figure for FY 2016 was not available. Therefore, it is not included in the table.

⁸ The $178.4 million apportioned to improving telephone level of service included $176.6 million to the Taxpayer Service appropriation and to the Operations Support appropriation.

⁹ The Level of Service is the relative success rate of taxpayers who want to speak with an assistor and were able to reach one.

¹⁰ Amounts are rounded.

¹¹ The Congressional Justification reflects the President's Budget request and includes agency priorities, requested budget levels, and performance plans.

¹² Pub. L. No. 111-148, 124 Stat. 119 (2010).

¹³ For FY 1995 and thereafter, the IRS was granted authority to retain new or increased user fee receipts to supplement its annual appropriation. Pub. L. No. 103-329, Title I, § 3, 108 Stat. 2382 (Sept. 30, 1994), as amended by Pub. L. No. 109-115, Div. A, Title II, § 209, 119 Stat. 2396 (Nov. 30, 2005).

¹⁴ FY 2016 planned user fee receipt supplement as of June 3, 2016.

¹⁵ Amounts are rounded.

¹⁶ The filing season is the period from January through mid-April when most individual income tax returns are filed.

¹⁷ We analyzed the correspondence types in which the taxpayer was expecting a response from the IRS.

¹⁸ Increase does not include cost of living.

¹⁹ FY 2016 planned distribution as of June 3, 2016.

²⁰ FY 2012 shown in order to calculate dollar change from prior year for FY 2013.

²¹ The Accounts Management function estimated that 1,063 FTEs would be expended on the Accounts Management function's Director's staff. (6,892 + 5,245 + 1,063 = 13,200)

²² Demand is the overall count of callers seeking live assistance from assistors and is calculated by adding calls offered to an assistor queue and disconnected calls.

²³ Handle time includes time assistors take to answer taxpayers' questions. It consists of the hold time, talk time, and time the assistor spends taking actions to complete a call after the taxpayer hangs-up (wrap time).

²⁴ The IRS blocks calls from entering the telephone queue when the queue backs up beyond a defined threshold, i.e., the taxpayer receives a recorded announcement to call back at a later time. The IRS refers to these blocked callsas disconnects.

I. Interviewed Wage and Investment Division and CFO personnel to determine the IRS's budget process.

II. Determined the allocated and expended budgets and FTEs for the four IRS appropriation accounts for FYs 2013 through 2016.

V. Analyzed the legislative provisions that the IRS was required to implement and that required funding from the Operations Support appropriation.

VI. Analyzed the number of FTEs allocated by IRS executives to answer telephones and work taxpayer correspondence in FYs 2013 through 2015.

Internal controls relate to management's plans, methods, and procedures used to meet their mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Our analyses were limited to the allocation of resources to taxpayer service.

Allen Gray, Director

Paula W. Johnson, Audit Manager

Tanya Boone, Lead Auditor

Audrey Graper, Auditor

Ann Ring, Auditor

Office of the Commissioner -- Attn: Chief of Staff C

Deputy Commissioner for Operations Support

Deputy Commissioner for Services and Enforcement

Deputy Chief Financial Officer

Director, Customer Account Services, Wage and Investment Division

Director, Accounts Management, Wage and Investment Division

Director, Joint Operations Center, Wage and Investment Division

Director, Finance

Director, Office of Audit Coordination

 

Figure 1: Budget for Taxpayer Services Program Activities Versus

 

Amount Expended for FYs 2013 Through 2015 (Dollars in Thousands)

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 30.]

 

 

 

 

 

 

Figure 2: Budgeted FTEs for Taxpayer Services Program Activities

 

Versus Expended FTEs for FYs 2013 Through 2015

 

 

[ Editor's Note: For a searchable version of the table,

 

see , p. 32.]

 

 

 

 

 

 

FOOTNOTES TO APPENDIX IV

 

² Reimbursables are funds received under agreements with other agencies that reimburse the IRS for work.

³ The 50% Carryover Funds are prior year lapsed funds approved by Congress for spending in the current budget year pursuant to Public Law 113-235, Division E, Section 609.

⁴ Funds received from the U.S. Department of Health and Human Services for implementation of the Health Insurance Reform Implementation Fund.

⁵ Supplemental Funding is funding approved by Congress above the core budget.

Generally, the budget process begins two years prior to the start of the fiscal year. Budget formulation activities for Fiscal Year 2015 started in the fall of 2012, and continued through January 2014. During the formulation process, each business unit within the IRS projects the funding it will need to perform its mission within the IRS and to support the IRS' mission of serving taxpayers and administering the tax system. From these individual business unit plans, IRS leadership must prioritize needs and make difficult decisions at the enterprise level as to how the funding provided to the IRS will be allocated across the organization to maximize its ability to meet the dual responsibilities of service and administration. From Fiscal Years 2010 through 2015, the funding appropriated to the IRS decreased by almost $1.2 billion (9.9 percent) and $2.3 billion in real terms. During this time, the enactment of several new tax provisions, with no additional funding allocation for their implementation, resulted in additional demands that competed for funding. Additionally, inflationary cost increases since Fiscal Year 2010 have not been funded and the IRS was required to absorb these additional costs from the base allocated resources. The report provides an accurate description of the process and the budgetary environment.

The Fiscal Year 2015 funding for the IRS was authorized by the Consolidated and Further Continuing Appropriations Act, 2015 (the Act) on December 16, 2014. Prior to that time, the government had operated under a continuing resolution that provided for funding at Fiscal Year 2014 levels. Under the Act, the IRS' funding for Fiscal Year 2015 was reduced by almost $346 million. As the funding levels were evaluated by IRS leadership, it was determined that the amount appropriated for Operations Support, which funds virtually all support needs of the IRS including rent, utilities, and automation support critical to our ability to provide service to customers, would not be sufficient to support the customer service and administrative operations. A decision was made to allocate a greater amount of user fees to Operations Support than had been done in previous years, permitting us to provide basic taxpayer services, process tax returns, and address other obligations of tax administration.

Because the IRS had operated under a flat budget assumption for the first three months of the fiscal year, the effects of the reduction were further compounded by the need to absorb it over a period of only nine months, rather than a full year. This is especially evident in the comparison of the staffing that had initially been allocated to telephone and correspondence services at the beginning of Fiscal Year 2015, to the revised staffing level after the final allocation to the Accounts Management function was determined in early February 2015. Initially, assuming a flat budget scenario, the IRS projected in November 2014 that 13,743¹ full-time equivalent (FTE) staff years would be available for correspondence and telephone services, with 7,649 FTE directed to correspondence and 6,094 FTE devoted to toll-free service, resulting in a 54 percent level of service (LOS) for telephone assistance. Upon receiving the final allocation, which permitted only 12,137² FTEs, the planned staffing for correspondence was reduced from 7,649 FTEs to 6,892. The planned staffing for telephone services was reduced from 6,094 FTEs to 5,245, resulting in a revised telephone LOS projected at 38 percent.

We disagree with statements included in the report that indicate the IRS did not need to use a higher percentage of employees to work correspondence rather than answer telephones. This is a statement of opinion made with the benefit of hindsight. Original projections were completed at the start of the fiscal year, based on historical trending and available data. While the volume of estimated receipts was not realized by the end of the fiscal year, our revised projection in February 2015, did reflect a reduced estimated volume of over 413,000 pieces of correspondence for the year, based on receipt and closure data compiled since the original projection. Further, the correspondence inventory levels at the end of Fiscal Year 2014 had little or no relationship to decisions made in January 2015, when Accounts Management officials had to completely revise their work plans to absorb a net cut of 1,576 direct FTE and recalibrate projected receipt patterns based on emerging trends and new legislation.

If you have any questions, please contact me, or a member of your staff may contact Ivy McChesney, Director, Customer Account Services, Wage and Investment Division, at (470) 639-3486.

² Does not include non-direct support staff at 1,063 FTEs.