9.8 FUNDING ALIGNMENT

This Section addresses inconsistencies between the current IRS funding structure and the proposed future organizational structure.

This report recommends the authorization of an IRS Centralized Services (ICS) fund. To illustrate approximate funding levels, the following table allocates the FY2020 enacted budget across the existing appropriations accounts and the newly proposed fund.

Illustrative Centralized Service Allocation using FY2020 (non-supplemental) Appropriations levels

Millions of Dollars

FY2020 Enacted Notional Budget ICS Allocation As Executed

Internal Revenue Service | Taxpayer First Act 221

9.0 | APPENDIX

As the example illustrates, the Taxpayer Services, Enforcement, and Operations Support accounts would pay for the direct costs of mission activities and, via a cost allocation, pay for the centralized services necessary to support them.

The proposed structure provides several immediate benefits. With the Taxpayer First Act, the Congress directed the IRS to reorient itself to be more taxpayer-focused. The reorganization and attendant financial restructuring implements that direction. It provides the Congress and the Administration a clear view of how appropriations fund major IRS activities, including support activities. Using the IRS Centralized Services fund also encourages IRS operating units to become more efficient with their use of support services because they would have to pay for more costly support from their own funds and conversely would accrue the benefit of cost savings.

Basic IRS operations increasingly rely on information technology and innovation. The proposal identifies these key areas as activities in the allocation fund. Placing them in the fund would allow operating units to apply technology solutions to problems as they emerge, even if the funding had not been included in the initial allocation.

The ICS would be a revolving fund modeled on the General Service Administration’s Working Capital Fund. Like the GSA’s fund, it would be funded solely by its customers and not require direct appropriations. It would centralize the funding of a wide range of support activities, most of which are currently funded in the Operations Support appropriation. The IRS proposes authorizing legislation that would allow the allocation fund to be available for technology and other centralized services. Customer agreements between the operating units would dictate service levels in exchange for funding allocations.

The IRS would allocate costs using simple methods such as FTEs, direct usage, budget dollars managed, etc. For example, for facilities costs, the IRS would use a model of employee square footage occupancy by building, allowing for precise accounting of facility costs by financial plan. The first year of the fund, the IRS would baseline cost allocations. After the “baseline” year, changes in later years – beyond inflationary increases – would be the responsibility of the business unit, which would bear the cost of increases and benefit from any savings achieved. By embedding support costs within the program budget activities, the proposal creates visible incentives for business units to reduce support expenses. The allocation fund also provides a mechanism for business units to self-fund critical projects that emerge after the budgets were set, subject to established standards.

Internal Revenue Service | Taxpayer First Act 222

9.0 | APPENDIX

To illustrate funding levels, the table below allocates the FY2020 enacted budget across the proposed organizational structure. It approximates the fund allocation by using a simple FTEbased approach. As IRS implementation of the Taxpayer First Act continues and cost attribution estimates become more refined, a re-examination of the IRS appropriation account structure should also be considered.

Illustrative Allocation of FY2020 Funding By Proposed Business Functions

Millions of Dollars Gross Funding ICS Cost Allocation

Funding Levels

Taxpayer Services 3,423 (1,362) 2,061

Submission Processing 1,039 (498) 541

National Taxpayer Advocate 332 (102) 230

Taxpayer Services 4,793 (1,961) 2,832

Examination & Determinations 3,985 (1,218) 2,767

Criminal Investigation 829 (183) 647

Collection 945 (355) 589

Appeals 253 (80) 173

Chief Counsel 456 (109) 347

Enforcement and Compliance 6,468 (1,945) 4,523

Office of the Commissioner 69 (15) 53

CIO - 2,078 2,078

Facilities - 882 882

Facilities Management - 120 120

Human Capital Organization - 294 294

Enterprise Change and Innovation - 161 161

Chief Financial Officer - 68 68

Procurement - 66 66

Communications - 28 28

Printing, Postage and Other Shared Services

• 226 226

IRS Centralized Services - 3,921 3,921

Business System Modernization 180 180

Totals $11,510 - $11,510

Internal Revenue Service | Taxpayer First Act 223

S E C T I O N