On May 7, the Treasury Department’s Internal Revenue Service (IRS) Oversight Board presented its annual report to a House Appropriations subcommittee. The report comes at the midway point in the IRS’s 10-year modernization program. While the board stated that substantial progress has been made in the last five years, the board also noted that the IRS is failing to meet key goals, in part because of inadequate funding.

The report points to a number of conflicting trends that are putting a strain on IRS resources. The IRS is doing more work for less money, handling a larger volume of complex returns, such as those from individuals who earn more than $100,000 and small corporations. From 1992 to 2002, the workload increased by 16 percent while the number of IRS employees decreased by 16 percent.

According to the report, there is a large gap between what taxpayers need and what the IRS can deliver. Closing the gap will be difficult, the board says, because the IRS is understaffed. To help solve the problem, the board recommends a steady 2 percent staff growth until 2010, a measure than had been proposed in former IRS Commissioner Charles O. Rossotti's end-of-term report last fall.

The board calls on the IRS to focus on a number of areas to increase productivity. The report recommends that the IRS take steps to close the compliance gap by collecting tax debt earlier, measuring compliance, and educating taxpayers. The board also cited a need to improve customer service as only seven out of 10 callers to the IRS help line are able to get through.

The board noted areas where the IRS has made improvements. In 2002, IRS employee satisfaction rose, as did the number of taxpayers who e-filed.