IRS will work with fewer funds in 1997, but more than it expected.

The Internal Revenue Service received enough federal funding for fiscal year 1997 to maintain operations and keep the tax systems modernization (TSM) program going; however, the IRS will be forced to operate with $130 million less than it received in fiscal year 1996. On September 30, 1996, President Clinton signed an omnibus fiscal 1997 funding bill (HR 4278) that includes approximately $7.2 billion for the IRS. The service had expected even deeper cuts for its 1997 budget--the $7.2 billion is $364 million more than the House and $163 million more than the Senate appropriations committees had approved.

Congressman Jim Lightfoot (R-Iowa), chairman of the House Appropriations Subcommittee on Treasury, Postal Service and General Government, said the 1997 budget would still allow the IRS to implement a successful 1997 filing season and put the IRS's failed computer modernization program back on track.

However, IRS spokesman Wilson Fadely told the Journal that the 1997 appropriations would not avert IRS staff reductions. "We are better off than we thought we would be, but we are still proceeding with staff cuts." He said many of the proposed 1997 staff reductions and district realignments had been under review before the budget cuts forced the IRS to take action. Earlier this year, the IRS had announced it would cut its force by 5,000 by March 1997. (See "IRS, Forced to Operate With Less, to See a Decline in Service," JofA, Oct.96, page 31.)

Modernizing information systems

The bill provides the IRS with $1.3 billion for information systems requirements, including TSM--$204 million less than the IRS received for its information systems in 1996. The conference report of the appropriations bill said that because the IRS was no further along with its modernization program than it was in 1988, it would divide the $336.2 million set aside for TSM into two categories-- $206.2 million will go to TSM programs already up and running (now referred to as the operational systems), and $130 million will be used for the TSM "development and deployment" systems for new programs.

The bill also contains an outsourcing strategy for TSM--the House and Senate conferees included in the bill a suspension of funding for the TSM operational systems unless the Department of the Treasury, by July 31, 1997, prepares a request for proposal that would be used to engage an alternative or new prime contractor to manage, integrate, test and implement the TSM program.

The systems modernization program has been the target of repeated political attacks. Earlier in the year, the House voted to take TSM out of the IRS's hands entirely and give it to the Defense Department to run. A National Commission on the Restructuring of the Internal Revenue Service, assembled by Senator Robert Kerrey (D-Neb.) is expected to issue its report by July 1997 on making the IRS a private or semiprivate agency.

Fiscal Year 1997 IRS Appropriation [in millions of dollars)

  Actual 1996 appropriation ..........$7,348(*)
  President-approved 1997
appropriation ........................$7,995
  House-approved 1997
appropriation ........................$6,853
  Senate-approved 1997
appropriation ........................$7,054
  Actual 1997 appropriation ..........$7,217

(*) Does not reflect rescissions of FY 1996 information systems funds.

Source: Internal Revenue Service