IRS Details Tax Reform Implementation Spending Plan

Internal Revenue Service
FY 2018 Section 113 Spending Plan for Tax Reform

In accordance with Public Law 115-141, Division E, Section 113, the Internal Revenue Service (IRS) is providing the following spending plan by account and object class for carrying out Public Law 115–97 (tax reform). This plan reflects the need to ensure that sufficient funds dedicated to implementation of tax reform will be available in the months leading up to the 2019 filing season (January through April 2019) when taxpayers file for the first time under the new tax provisions. The estimates below are subject to change as the IRS continues to evaluate systems and issue interpretive guidance. The IRS will report actual spending on a quarterly basis consistent with the FY 2018 joint explanatory statement.

Distribution of FY 2018 Funding by Account, Activity, Object Class

Implementation Requirement ($ thousands)	FY 2018
	Taxpayer Services	Enforcement	Operations Support
Taxpayer Assistance, Education and Outreach	$15,000	—	—
Tax Forms, Instructions and Publications	$2,000	—	—
Information Technology Systems and Support Services	—	—	$291,000
Published Guidance, Notices, FAQs	—	$7,500	—
Tax and Information Returns Processing	$2,000	—	—
Program Management	—	$2,500	—
Total	$19,000	$10,000	$291,000
Object Class ($ thousands)	FY 2018
	Taxpayer Services	Enforcement	Operations Support
11 — Personnel Compensation (salaries)	$13,250	$6,000	$45,000
12 — Personnel Benefits	$5,250	$1,500	$15,000
21 — Travel and transportation (training)	$500	—	—
25 — Contractual services	—	$2,500	$231,000
Total	$19,000	$10,000	$291,000

Explanation of Cost Estimates by Implementation Requirement

1. Taxpayer Assistance, Education and Outreach (approximately $15 million):

Salaries and expenses for seasonal full-time equivalents (FTE or hours of effort) in Wage and Investment (W&I) to respond to an increased volume of taxpayer phone calls and written correspondence. Estimate conservatively assumes IRS assistors will need to answer 4 million additional phone calls to maintain level of service. This represents a 17 percent increase over the 23 million assisted calls answered in FY 2017. Following the 1986 tax reform, call volume increased 14 percent. More recently, following the enactment of the Affordable Care Act, calls and correspondence from taxpayers increased by 8 percent from FY 2010 to FY 2011 and another 18 percent the following year.

Training and familiarizing employees is required in all areas including service and enforcement with new provisions and requirements so that employees can provide taxpayers with effective, courteous service and uphold the Taxpayer Bill of Rights. For taxpayer facing organizations (phones, walk-in), the IRS expects to conduct about 40,000 hours of training on the various provisions and changes at a cost of about $1.8 million. Training will begin shortly after the 2018 filing season concludes with the goal of training all employees by January 2019, the start of the 2019 filing season (tax year 2018). The estimate also includes costs for Chief Counsel to review the training materials and provide interpretative advice.

IRS will need to conduct extensive outreach to help prepare small businesses and tax preparers, in addition to training its employees on the new tax rules. IRS typically holds more than 1,000 outreach events a year, which helps educate thousands of taxpayers and tax professionals about the tax law and IRS processes. We expect the number of events and participants to significantly increase as a result of tax reform. IRS will conduct outreach through traditional and social media. Costs include collaboration with external partners to identify solutions to best address taxpayer needs. We expect to see increased interest and participation at key partner events this year. For example, early registration at this summer's IRS Nationwide Tax Forums is already running 10-15 percent ahead of last year. We anticipate requests for face-to-face events will increase 25-30 percent, particularly after more published legal guidance comes out in the weeks and months ahead.

2. Tax Forms, Instructions and Publications (approximately $2 million):

Salaries and expenses for FTE in W&I for increased costs associated with revising forms, publications, instructions on an expedited basis in time to inform and educate the public and meet taxpayer demand for the 2019 filing season (tax year 2018). Approximately 450 tax products will need to be created and revised, a much larger effort than is required for a normal filing season. In addition to forms and publications, the IRS will need to revise and/or develop notices. An estimate on the number of new or revised notices that will be required is currently being developed.

3. Information Technology Systems and Support Services (approximately $291 million):

An estimated 542 additional FTE (hours of effort) will be required to modify existing tax processing systems to incorporate changes to credits, deductions, and brackets; establish new system functionality and workflows; manage programs and integrate services; and facilitate tax-reform human capital planning, acquisitions, and financial planning. This estimate is based in part on a review of systems with similar capabilities and requirements that the IRS has developed or modified for previous tax law changes; an internal assessment of provisions; and an ongoing third party assessment. Approximately 140 systems will be updated, primarily related to supporting the tax filing season, to accommodate the hundreds of newly revised forms. The filing season systems most impacted include:

• Business Master File (BMF)

• Modernized e-File (MeF)

• Integrated Data Retrieval System (IDRS),

• Business Document Specific (BDOCSPEC)

• Integrated Submission and Remittance Processing (ISRP)

• Business Return Transaction File (BRTF)

• Generalized Mainline Framework (GMF),

• Error Resolution System (ERS)

• Generalized Unpostable Framework (GUF); and

• Individual Master File (IMF).

Systems development and preparation will fall into the following work streams:

• Conduct system architecture and engineering analysis that will translate business requirements to their technical IT solutions and identify relationships and inter-dependencies between numerous filing season applications. This analysis will also assess the impact and required work to the downstream management and financial systems. Further analysis is required to estimate the impact to downstream compliance systems and other related support systems such as the Integrated Financial System (IFS) (approximately $48 million to $53 million);

• Upgrade or acquire the necessary IT production environments. These environments support the coding, development, testing, production, and disaster recovery functions required to implement the necessary IT changes (approximately $34 million to $56 million);

• Implement programming changes to the impacted systems, which include existing code reflecting decades of tax law (approximately $67 million to $86 million);

• Perform system testing to ensure the programming changes work as intended and performance is acceptable. The IRS conducts multiple tests at the individual system level, integration between related impacted systems, and across the entire environment before deploying to production for a successful and seamless filing season for taxpayers (approximately $9 million to $17 million);

• Conduct security testing and assessments throughout the process to protect IRS network and taxpayer data (approximately $3 million to $8 million).

• Operations and maintenance of deployed systems (approximately $24 million to $30 million).

• Program management and integration services will be required to coordinate implementation across IT functions that would develop schedules and monitor schedules ensuring dependencies are managed; develop and provide status reporting and monitoring to the IRS filing season readiness community and management oversight bodies; maintain the appropriate systems documentation and governance requirements; and support change management, risk management and other program disciplines that support successful delivery (approximately $20 million to $25 million).

• Other requirements (up to $16 million)

4. Regulations, Notices, FAQs, and Other Guidance (approximately $7.5 million):

Additional FTE (hours of effort) to support anticipated Chief Counsel workload related to published guidance; forms and publications; technical support; and training.

5. Program Management (approximately $2.5 million):

The Services & Enforcement Program Management Office is responsible for coordinating across the IRS, bringing together operational, legal, and IT subject matter experts to redefine business processes, make programming changes, and change tax forms, publications, and instructions. This office will ensure that the IRS is prepared to successfully implement tax reform according to each provision's effective date; that leadership and appropriate stakeholders have a clear understanding and awareness of deployment activities and the state of readiness of each release from both IT and business perspectives; industry best practices are used for project and program management, governance, and contingency planning are followed; and that the IRS is fully prepared to support taxpayers in the 2019 filing season.

6. Tax and Other Returns Processing (approximately $2 million):

Salaries and expenses for FTE in W&I to transfer and verify information from paper returns and forms (roughly 45 million in FY 2016) to IRS databases for electronic storage, error and fraud processing, and availability to employees when taxpayers seek assistance or case moves to exam or collections. The law requires that, in order to receive the child tax credit (both the refundable and non-refundable portion), taxpayers must include a Social Security number for each qualifying child for whom the credit is claimed on the tax return. The IRS will have to verify that an SSN was issued for these purposes.