White House Releases Fiscal 2007 Budget -- IRS Budget

The IRS strategic goals are: Improve Taxpayer Service -- help people understand their tax obligations and make it easier for them to participate in the tax system; Enhance Enforcement of the Tax Law -- Ensure all taxpayers meet their tax obligations, so that when Americans pay their taxes, they can be confident their neighbors and competitors are also doing the same; and Modernize the IRS through its People, Processes and Technology -- Strategically manage resources, associated business processes and technology systems to effectively and efficiently meet service and enforcement strategic goals.

Tax Enforcement: The IRS continues its emphasis on tax enforcement, increasing collections of delinquent tax debt from $34 billion in 2001 to $47 billion in 2005, an increase of 38-percent. The Budget maintains the enforcement funding increase provided in 2006 to continue this success. As in 2006, the Administration proposes to provide enforcement increases as a Budget Enforcement Act program integrity cap adjustment (see chapter 15, Budget Reform Proposals in the Analytical Perspectives volume of the 2007 Budget). In total, tax enforcement funding is proposed to increase by two percent over the 2006 enacted level.

The IRS will continue efforts to improve its enforcement efficiency through streamlining and centralizing work processes, improving workload selection techniques, increasing managerial involvement in casework, and implementing initiatives to reduce cycle time by refining case selection criteria. IRS will enhance coverage of high-risk compliance areas, as well as address the tax gap associated with small business and self-employed taxpayers. Enforcement efforts will focus on critical reporting, filing and payment compliance programs, and will highlight abusive tax avoidance transactions and high income individual examinations involving pass-through entities (e.g. partnerships, trusts). IRS will continue to improve its tax collection functions and implement the private collection agent authority provided in 2004.

Taxpayer Service: Assisting the public to understand their tax reporting and payment obligations is a cornerstone of taxpayer compliance. In 2007, the IRS will continue focusing efforts on providing taxpayer service through more efficient automated methods. This approach is consistent with the recommendations of the 2005 PART analysis of this program. Thanks to investments in technology, taxpayers can now access a vast amount of information on the IRS website (www.irs.gov), including frequently asked tax law questions and tax publications. For example, in 2005 22 million taxpayers checked on their refund status using IRS' internet based "Where's My Refund?" tool. They also can use automated features found at 1-800-829-1040. In addition, efforts to increase electronic filing will continue, with new forms and schedules added to the business electronic portfolio, leveraging partner organizations such as state taxing authorities, and increasing use of volunteers to better serve taxpayer needs.

Budget Structure: The 2007 Budget for the IRS is presented in the traditional appropriations structure as requested by the appropriations committees. However, IRS spending by program is not readily transparent in this structure. For example, costs for IRS tax examinations and most other programs reside in all three primary operating accounts. For examination, costs like rent are in Processing, Assistance and Management, salaries and benefits are in Tax Law Enforcement, and telecommunications and technology costs are in Information Systems. The Administration will work with Congress to develop a new appropriations and budget activity structure that shows the full costs of each program within a single budget activity.

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The Budget proposes to permanently extend the EITC provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001, which sunset on December 31, 2010. These provisions reduce EITC-related marriage penalties, simplify certain eligibility criteria for the credit, and allow the IRS to use more cost-efficient procedures to deny questionable EITC claims. The Budget also proposes to clarify the definition of qualifying child for child-related tax benefits, including the EITC and the child tax credit. In addition, the Budget proposes to simplify requirements regarding filing status, presence of children, and immigration status for EITC eligibility. Finally, the Budget proposes to extend through 2007 a provision, which would otherwise expire on December 31, 2006, allowing military personnel to elect to include combat pay in earned income for purposes of computing the EITC.

The Budget proposes to accelerate and permanently extend the child tax credit provisions in the Economic Growth and Tax Relief Reconciliation Act of 2001, which sunset on December 31, 2010. The Budget also proposes to clarify the definition of qualifying child for child-related tax benefits, including the EITC and the child tax credit. In addition, the Budget proposes to simplify eligibility and computation of the additional child tax credit.

This schedule reflects the effects of HCTC and other Administration health-related tax proposals in cases where the credit exceeds the tax liability resulting in payment to the tax filer.

As directed by the Internal Revenue Service Restructuring and Reform Act of 1998 (section 7802(d) 26 U.S.C.), the Internal Revenue Service Oversight Board shall annually review and approve a budget request for the Internal Revenue Service. The Oversight Board's approved request shall be submitted to the President by the Secretary without revision, and the President shall submit the request, without revision, to Congress together with the President's Budget request for the Internal Revenue Service. The 2007 Oversight Board budget recommendation for the Internal Revenue Service is $11,815 million.

SEC. 202. The Internal Revenue Service shall maintain a training program to ensure that Internal Revenue Service employees are trained in taxpayers' rights, in dealing courteously with taxpayers, and in cross-cultural relations.

SEC. 203. The Internal Revenue Service shall institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information.

[SEC. 204. Funds made available by this or any other Act to the Internal Revenue Service shall be available for improved facilities and increased manpower to provide sufficient and effective 1-800 help line service for taxpayers. The Commissioner shall continue to make the improvement of the Internal Revenue Service 1-800 help line service a priority and allocate resources necessary to increase phone lines and staff to improve the Internal Revenue Service 1-800 help line service.]

[SEC. 205. None of the funds appropriated or otherwise made available in this or any other Act or source to the Internal Revenue Service may be used to reduce taxpayer services as proposed in fiscal year 2006 until the Treasury Inspector General for Tax Administration completes a study detailing the impact of such proposed reductions on taxpayer compliance and taxpayer services, and the Internal Revenue Service's plans for providing adequate alternative services, and submits such study and plans to the Committees on Appropriations of the House of Representatives and the Senate for approval: Provided, That no funds shall be obligated by the Internal Revenue Service for such purposes for 60 days after receipt of such study: Provided further, That the Internal Revenue Service shall consult with stakeholder organizations, including but not limited to, the National Taxpayer Advocate, the Internal Revenue Service Oversight Board, the Treasury Inspector General for Tax Administration, and Internal Revenue Service employees with respect to any proposed or planned efforts by the Internal Revenue Service to terminate or reduce significantly any taxpayer service activity.]

SEC. [206] 204. Of the funds made available by this Act to the Internal Revenue Service, not less than [$6,447,000,000] $6,824,070,000 shall be available only for tax enforcement. In addition, of the funds made available by this Act to the Internal Revenue Service, and subject to the same terms and conditions, an additional [$446,000,000] $137,275,000 shall be available for [enhanced] tax enforcement.

[SEC. 207. Of the funds made available by this Act to the Internal Revenue Service, not less than $166,249,000 shall be available for operating expenses of the Taxpayer Advocate Service, of which not less than $141,311,650 shall be made available from the "Tax Law Enforcement" account.]

[SEC. 208. The Internal Revenue Service shall submit its fiscal year 2007 congressional budget justifications to the Committees on Appropriations of the House of Representatives and the Senate using the identical structure provided under this Act and only in accordance with the direction specified in the report accompanying this Act.]

[SEC. 209. Section 3 under the heading "Administrative Provisions -- Internal Revenue Service" of title I of Public Law 103- 329 is amended by striking the last proviso.] (Department of the Treasury Appropriations Act, 2006.)

[Section 5021, For the purposes of compliance with section 205 of Public Law 109-115, a reduction in taxpayer service shall include, but not be limited to, any reduction in available hours of telephone taxpayer assistance on a daily, weekly and monthly basis below the levels in existence during the month of October 2005.] (Emergency Supplemental Appropriations Act to Address Hurricanes in the Gulf of Mexico and Pandemic Influenza, 2006)