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FINANCIAL
REPORT
FISCAL YEAR
2021
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WEBSITE INFORMATION
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www.irs.gov
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I
ABOUT THIS REPORT
This Financial Report for Fiscal Year (FY) 2021 presents the Internal Revenue Service’s (IRS) financial
information in relation to its mission and the resources entrusted to the IRS. The Financial Report also
highlights select accomplishments and challenges in implementing programs that promote the IRS’s
mission. This report is presented in accordance with Office of Management and Budget’s (OMB) Circular
A-136, Financial Reporting Requirements as applicable to the IRS as a component of United States
Department of the Treasury (Treasury). This financial report is available online at: https://www.irs.gov/
pub/irs-pdf/p5456.pdf
HOW THIS REPORT IS ORGANIZED
Message from the IRS Commissioner
Part 1: Management’s Discussion and Analysis
Provides a high-level overview of the IRS’s organizational structure, strategic framework, programmatic
and financial performance, and management assurances related to the IRS’s internal controls.
Performance is reported annually in the IRS's Congressional Budget Justification and Treasury's Agency
Financial Report.
Part 2: Financial Section
Begins with a message from the Chief Financial Officer, followed by the Government Accountability
Office’s (GAO) Auditors’ Report, IRS Response to the Independent Auditors' Report, audited financial
statements including the accompanying note disclosures, and required supplementary information
(unaudited).
Part 3: Other Information (Unaudited)
Contains information including but not limited to data specific to Tax Credits, Tax Expenditures, the Tax
Gap, Management and Performance Challenges identified by the Treasury Inspector General for Tax
Administration (TIGTA), and Management’s response. Payment Integrity, Fraud Reduction Report, Real
Property, Civil Monetary Penalties Inflation Adjustment, and Grants Programs are reported by Treasury
and can be found at: https://home.treasury.gov/about/budget-financial-reporting-planning-andperformance/agency-financial-report.
II
TABLE OF CONTENTS
WEBSITE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I
CONNECT WITH US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I
HOW THIS REPORT IS ORGANIZED . . . . . . . . . . . . . . . . . . . . . . . . . . . II
MESSAGE FROM THE COMMISSIONER OF THE IRS . . . . . . . . . . . . . . . . . . . .IV
MANAGEMENT'S DISCUSSION AND ANALYSIS � � � � � � � � � � � � 1
ABOUT THE IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MISSION AND ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IRS STRATEGIC MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
COVID-19 PANDEMIC RESPONSE UPDATE . . . . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ENTERPRISE RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 18
LOOKING TO THE FUTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ANALYSIS OF SYSTEMS, LEGAL COMPLIANCE, AND INTERNAL CONTROL . . . . . . . . . 20
MANAGEMENT ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
FINANCIAL MANAGEMENT HIGHLIGHTS
. . . . . . . . . . . . . . . . . . . . . . . 23
FINANCIAL INFORMATION � � � � � � � � � � � � � � � � � � � � � 32
MESSAGE FROM THE CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . 34
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . 35
ENCLOSURE: IRS RESPONSE TO THE INDEPENDENT AUDITOR'S REPORT . . . . . . . . . 43
PRINCIPAL FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 44
NOTES TO THE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 51
REQUIRED SUPPLEMENTARY INFORMATION
. . . . . . . . . . . . . . . . . . . . . 74
OTHER INFORMATION � � � � � � � � � � � � � � � � � � � � � � � 77
SECTION A: REFUNDABLE TAX CREDITS AND OTHER OUTLAYS
. . . . . . . . . . . . . 78
SECTION B: MANAGEMENT CHALLENGES AND IRS RESPONSE . . . . . . . . . . . . . . 89
SECTION C: SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT ASSURANCES 110
SECTION D: ACRONYM LIST
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
III
MESSAGE FROM THE COMMISSIONER OF THE IRS
The IRS is dedicated to serving taxpayers and the
tax system, and our activities each year reflect the
importance of the agency and its workers to our
nation.
The IRS collected more than $4 trillion in taxes in FY 2021 and collects
nearly all the revenue that supports the federal government’s operations. As
the past year shows, we are more than a tax administration agency. We also
make it possible for the government to perform its vital functions and be
effective on everything from education to defense.
The IRS and the entire nation continued to face major challenges in FY 2021 because of COVID19. During the period between October 1, 2020 and September 30, 2021, IRS employees answered
Congress’ call to deliver two more rounds of Economic Impact Payments, following the first round
distributed in FY 2020. Taken together, the three rounds of payments totaled more than $800 billion in
help to hundreds of millions of deserving and needy Americans.
IRS employees also delivered for the nation by implementing changes to the Earned Income Tax Credit,
the Child Tax Credit, and other refundable credits as part of the American Rescue Plan passed by
Congress in March 2021. Our focus was on one very important change that allowed delivery of up to
half of the 2021 Child Tax Credit as advance monthly payments to eligible families between July and
December. The IRS issued the first payments on July 15; roughly $15 billion went out to about 35 million
families around the country.
Another important aspect to our work has been enhancing the taxpayer experience. The IRS has been
emphasizing service to diverse and underserved communities, and along those lines we took important
steps to further improve the amount of assistance we provide in multiple languages. For the first time in
the history of the IRS, we made the Form 1040 available in Spanish during the 2021 tax filing season. We
also debuted Schedule LEP, Request for Change in Language Preference, giving taxpayers with limited
English proficiency the opportunity to indicate a preferred language when communicating with the IRS.
To ensure fairness, enforcement of the tax laws is just as critical as the services we provide. The
IRS remains committed to having a strong, visible, and robust tax enforcement presence to support
voluntary compliance while also respecting taxpayer rights. During FY 2021, the IRS continued to
develop innovative approaches to understanding, detecting, and resolving potential noncompliance to
maintain taxpayer confidence in the tax system. We have expanded use of data, analytics, and artificial
intelligence across all lanes in the audit process, from selection to examination.
IV
Also, I am pleased to report that the IRS maintained an unmodified (clean) financial statement audit
opinion for the 22nd consecutive year. Based upon the results of our internal control evaluations, I can
provide reasonable assurance that the performance and financial information in this report is complete
and accurate. We strengthened management controls, made progress toward achieving all U.S. financial
systems and control objectives, and will continue to look for opportunities to improve.
While there is much to focus on the present, the IRS is also looking toward the future to find new ways
to serve taxpayers and improve the tax system. In January 2021, we took a major step on this journey by
issuing our Report to Congress as required under the Taxpayer First Act.
The report included recommendations for redesigning our organization to make improvements and
enhance the taxpayer and employee experience.
Since then, we have begun the IRS NEXT initiative to revitalize and build an organization for the next
generation. I am confident this journey will pay significant dividends over time. The improvements
we make to the agency over the next few years will produce abundant benefits for taxpayers, the tax
system, and our nation well into the future.
Sincerely,
Charles P. Rettig
Commissioner of the Internal Revenue Service
November 8, 2021
V
MANAGEMENT'S
DISCUSSION
AND
ANALYSIS
Management's Discussion and Analysis
ABOUT THE IRS
The IRS is a bureau of the Department of the Treasury. The IRS carries out the responsibilities of the
Secretary of the Treasury under Internal Revenue Code (IRC) Section 7801. The Secretary has full
authority to administer and enforce the internal revenue laws and has the power to create an agency to
enforce these laws.
IRC Section 7803 provides for the appointment of a commissioner of Internal Revenue to administer and
supervise the execution and application of the internal revenue laws.
History
The IRS is one of the oldest bureaus in the United States Government. Article 1, Section 8 of the
Constitution gave the federal government the power to “lay and collect Taxes, Duties, Imposts and
Excises, to pay the Debts and provide for the common Defense and general Welfare of the United
States…” In 1862, President Lincoln and the Congress established the Bureau of Internal Revenue and
the nation’s first income tax. In 1953, the Bureau of Internal Revenue’s name changed to the Internal
Revenue Service. Visit the IRS History Timeline at www.irs.gov/irs-history-timeline.
Internal Revenue Service Building, 1111 Constitution Ave., Washington D.C.
2
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
MISSION AND ORGANIZATION
The IRS’s mission is to provide America’s taxpayers top-quality service by helping them understand and
meet their tax responsibilities and enforce the law with integrity and fairness to all.
This mission statement describes our role and the public’s expectation about how we should perform
that role.
. In the United States, the Congress passes tax laws and requires taxpayers to comply.
. The taxpayer’s role is to understand and meet his or her tax obligations.
. The IRS’s role is to help willing taxpayers with the tax law, while ensuring that the minority who are
unwilling to comply pay their fair share.
The IRS’s core operations include the collection of individual and corporate taxes, processing tax
returns, taxpayer assistance, enforcement of the tax laws through examination and collection, as well
as criminal investigation of tax crimes. The wide IRS portfolio also includes tax-exempt organizations,
tax-exempt bonds, multiple refundable tax credits, and other specialized programs.
The IRS's organizational structure closely resembles the private sector model of organizing around
customers with similar needs. Four business units focus on unique groups of taxpayers, Wage
& Investment, Small Business/Self-Employed, Large Business & International, and Tax Exempt &
Government Entities. Additionally, the IRS has other functional organizations that have direct interaction
with taxpayers and tax preparers, as well as an operations support structure that supplies direction and
guidance to the IRS’s administrative functions. The current IRS organization chart is available at: Today's
IRS Organization | Internal Revenue Service.
3
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
IRS STRATEGIC MANAGEMENT
The IRS FY 2018–2022 Strategic Plan has six strategic goals, developed with input from all IRS
business units and operating divisions. The IRS Strategic Goals guide resource decisions, programs,
and operations to meet the changing needs and expectations of taxpayers and members of the tax
community who serve taxpayers.
EMPOWER AND ENABLE ALL TAXPAYERS
PROTECT THE INTEGRITY OF THE
TAX SYSTEM
P
M I
S
L
E
COLLABORATE WITH EXTERNAL
PARTNERS
P
S
O
I
E
O
N
Strategic
Plan
CULTIVATE A WELL-EQUIPPED,
DIVERSE, FLEXIBLE AND ENGAGED
WORKFORCE
FY2018-2022
ADVANCE DATA ACCESS, USABILITY
AND ANALYTICS
F
O
U
N
D
A T
I
O
N
DRIVE INCREASED AGILITY, EFFICIENCY, EFFECTIVENESS AND SECURITY
The strategic plan and performance measures are available at: IRS Strategic Plan | Internal Revenue
Service.
4
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
COVID-19 PANDEMIC RESPONSE UPDATE
The COVID-19 pandemic required the IRS to rapidly implement new legislative
requirements and offer relief to taxpayers experiencing hardship while preserving the safety
of its employees. In FY 2021, Congress and both administrations entrusted the IRS with
$2.4 billion in supplemental funding to support recovery from the COVID-19 pandemic.
Implementation of New Legislation
In FY 2021, Congress passed several laws that offer relief to Americans experiencing financial hardship.
The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA), signed
into law on December 27, 2020, authorized a second round of Economic Impact Payments (EIP). This
legislation required that the second round of EIP payments (EIP 2) be issued by
January 15, 2021. The IRS was prepared and delivered the majority of EIP
2 in just two days following the enactment.
The Taxpayer Certainty and Disaster Tax Relief Act of
CRRSAA
2020 (Relief Act), enacted on December 27, 2020, made
DEC. 27
2020
several changes to the employee retention tax credits
previously made available under the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act), including changing
and extending the Employee Retention Credit (ERC) for six
months through June 30, 2021. Several of the changes apply
only to tax year (TY) 2021 while others apply to both TYs 2020 and
2021.
RELIEF
ACT
DEC. 27
2020
FY21
LEGISLATION
ARP
MAR.11
2021
The American Rescue Plan Act of 2021 (ARP), signed into law on March
11, 2021, authorized a third round of EIPs (EIP 3). The IRS began issuing these
payments on March 12, 2021. In FY 2021, the IRS, in coordination with the Bureau of the
Fiscal Service (Fiscal Service), issued over 388 million EIP 2 and 3 payments worth over $545 billion.
JUL-DEC
2021
In addition, the ARP requires the IRS to issue a monthly advance of the Child Tax Credit
(CTC) payments, consisting of half the total credit amount, to qualifying taxpayers
beginning in July 2021 and continuing monthly through December 2021. Extensive
coordination and collaboration across the IRS and with stakeholders, including the Fiscal
Service, allowed for the prompt issuance of the Advance Child Tax Credit (AdvCTC)
payments. IRS and stakeholder efforts included the development and deployment
of programming changes, new processes, creation of new notices, and extensive
communications and outreach to provide taxpayers with information and guidance.
5
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
In FY 2021, the IRS deployed several new tools on IRS.gov to support the administration of the AdvCTC
payments made available through the ARP legislation, including:
. Child Tax Credit Non-filer Sign-up Tool to help eligible families who do not normally file tax returns
register for the monthly AdvCTC payments.
. Child Tax Credit Update Portal (CTCUP) to enable families to verify their eligibility for advance
payments and to unenroll from the monthly payment program. The IRS later added functionality to
CTCUP to allow recipients to check the status of their payments and make updates to their address
and bank account information.
. Advance Child Tax Credit Eligibility Assistant to help families verify whether they qualify for AdvCTC
payments.
Administrative Relief to Help Taxpayers
After issuing the first and second rounds of EIPs, the IRS created a process called Recovery Rebate
Credit (RRC) for individuals who either did not receive EIPs or received less than the full amount
due. This provided the opportunity to claim the EIPs when they filed their 2020 tax return. To assist
non-filers with claiming the RRC, the IRS promoted the existing Free File program via communications
and outreach throughout the 2021 filing season, including adding frequently asked questions called,
“Claiming the Recovery Rebate Credit If You Aren’t Required to File a Tax Return” on IRS.gov. The IRS
also partnered with the Social Security Administration (SSA) to promote information on EIPs and the
RRC through their related web content.
$10,200
$20,400
Additionally, the ARP authorized individuals who received unemployment compensation
in 2020, and had a modified adjusted gross income (AGI) less than $150,000, to exclude
from their income up to $10,200 of their unemployment compensation or $20,400 for
married individuals filing a joint return. Since the change in legislation occurred after
the start of the filing season, the IRS analyzed previously filed TY 2020 tax returns to
identify and determine eligibility for the unemployment compensation exclusion, without
imposing added burden on taxpayers to file amended returns. This resulted in the IRS
automatically adjusting millions of taxpayer accounts to allow this exclusion and issue
refunds if not claimed on the tax return. Finally, the ARP Act also suspended repayment
of excess Advance Premium Tax Credit (APTC) amounts for TY 2020.
Business Tax Relief
In addition to the implementation of other relief credits to alleviate financial burdens on certain taxpayers,
Congress enacted Sections 2303 and 2305 of the CARES Act to offer temporary tax benefits in the form
of enhanced carrybacks for Net Operating Losses and minimum tax credit recovery. Individuals, estates,
and trusts can file Forms 1045, Application for Tentative Refund, and Corporations can file Form 1139,
Corporation Application for Tentative Refund, to apply for a quick tax refund resulting from the carryback
of a Net Operating Loss. The IRS set up a temporary deviation that allowed fax submissions for those
forms and others to speed up processing.
6
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Outreach and Education Efforts to Help Navigate Through Pandemic Issues and
New Legislation
The IRS continued to work extensively with external stakeholders
by collaborating with more than 10,000 partners across the
nation, including organizations inside and outside of the tax
community, federal agencies, state and local governments,
and congressional offices. This collaboration helped reach
more taxpayers regarding the availability of payments such as
EIP and AdvCTC and the extended filing deadline for individuals
from April 15 to May 17. The IRS placed special emphasis on
underserved communities, including rural communities and those experiencing homelessness. The
IRS delivered hundreds of printed products on these topics and more than 750 informational postings
on IRS.gov with most translated into Spanish and some translated into Chinese Simplified, Chinese
Traditional, Korean, Vietnamese, Russian, and Haitian Creole.
IRS Operations and Safety
At the onset of the COVID-19 pandemic in March 2020, the IRS
took unprecedented actions to protect the health and safety of
its employees and the taxpaying public. This included closing
Submission Processing Centers, Taxpayer Assistance Centers
(TACs), and other offices nationwide. At the beginning of FY 2021,
many employees remained on health and safety leave, resulting in a
significant amount of unopened mail, tax return processing delays,
and correspondence. By December 2020, the IRS had resumed
normal mail operations, and by May 2021, TACs were open and
accepting face-to-face appointments. The work performed at
IRS Submission Processing Centers is not conducive to a remote
telework environment.
The IRS also has a venue for employee feedback via weekly Pulse
Surveys to understand and support employees with their health, safety,
and well-being. The survey results help IRS leadership in adjusting
efforts and initiatives to resolve employee concerns in real-time.
COVID-19 Screening Questions
Preguntas Para Realizar La Detección Del COVID-19
If you can answer “Yes” to any of
the following questions, please
DO NOT ENTER.
Si puede responder “Sí” a alguna de
las siguientes preguntas, por favor,
NO ENTRE.
Do the following:
Haga lo siguiente:
• Contact your manager for
additional guidance.
• Contact your health care
provider.
• Comuníquese con su gerente para
obtener guía adicional.
• Comuníquese con su proveedor de
cuidado médico.
Are you experiencing any symptoms of
COVID-19? The symptoms are: Cough,
shortness of breath or difficulty breathing
or at least two of these symptoms: fever,
chills, repeated shaking with chills,
muscle pain, headache, sore throat, new
loss of taste or smell.
¿Está usted experimentando algún síntoma
del COVID-19? Los síntomas son: tos, falta de
repetidos con escalofríos, dolor muscular, dolor de
cabeza, dolor de garganta, nueva pérdida del sentido
del gusto o del olfato.
6 feet
Within the last 14 days, have you been
in close physical contact (six feet or
closer) with a person you know to have
laboratory-confirmed COVID-19?
En los últimos 14 días, ¿ha tenido usted contacto
físico cercano (6 pies o más cerca) con alguien que
usted sabe que tiene el COVID-19
laboratorio?
In the last 14 days, have you received
instructions from a health care authority
to self-observe, self isolate, or selfquarantine?
En los últimos 14 días, ¿ha recibido usted
instrucciones de una autoridad de la salud para
que se observe, se aísle o se ponga a sí mismo en
cuarentena?
Document 13372-A (EN-SP) (5-2020) Catalog Number 74498Q Department of the Treasury Internal Revenue Service publish.no.irs.gov
7
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
PERFORMANCE OVERVIEW
The IRS collected more than $4 trillion in taxes in FY 2021 and collects nearly all the revenue that
supports the federal government’s operations. The IRS is one of the world’s largest tax administrators.
Some key performance achievements in FY 2021:
269M
Federal Tax
Returns
and Forms
Processed
$4.1T
$1,691
Collected in
Gross Taxes
Average
Individual
Refund
$75.0B
Enforcement
Revenue
Collected
The IRS demonstrates responsible stewardship over taxpayer dollars by aligning performance measures
with budgetary resources as appropriated by Congress. The IRS reports its performance data in the
IRS Congressional Budget Justification and Annual Performance Report and Plan. This document is
accessible at www.irs.gov/about-irs/budget-documents-and-other-resources. The IRS estimates
release of the FY 2021 report in the second quarter of FY 2022.
Empower and enable all taxpayers to meet their tax obligations
The IRS empowers taxpayers by making it easier for them
to understand and meet their filing, reporting and payment
obligations. The IRS continues to add and enhance
tools and support services to improve taxpayers' and
tax professionals' interactions with the IRS on whichever
channel they prefer. This goal is primarily funded by the
Taxpayer Services major budget account as presented in
the Statement of Budgetary Resources (SBR).
Progress toward goal: In FY 2021, the IRS released
new online applications, including the CTCUP, AdvCTC
Assistant, and Tax Professional Account after passage of
the ARP. Overall, the Online Account (OLA) had twice the
number of users than last year. The IRS also launched the
www.irs.gov/paycash website that educated unbanked
taxpayers with information to help them meet their tax
obligations.
The following select activities and programs highlight
some FY 2021 efforts to empower and enable all taxpayers
to meet their tax obligations.
8
StrategIc ObjectIVeS
. Simplify the process of filing,
correction, and payment
for all taxpayers and their
representatives.
. Help taxpayers understand their
rights and responsibilities through
proactive education and tailored
outreach.
. Expand secure digital options for
taxpayers and professionals to
interact efficiently with the IRS,
while maintaining and improving
traditional service options.
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Tax Return Processing: On March
17, 2021, the IRS announced an
extension of the individual filing
deadline from April 15 to May 17.
(The IRS extended the tax deadline
for residents of Texas, Oklahoma, and
Louisiana to June 15 due to severe
weather.) The week ending the filing
season, the IRS received 148 million
individual returns. Electronically filed
(e-File) returns accounted for 138.6
million of the total returns received,
compared to 119.5 million in calendar
year (CY) 2020. In FY 2021, the IRS
received approximately 53.6 million
business returns, an increase of 17.7%
from last year. Electronically filed
business returns trended upward to
32.9 million e-filed in FY 2021, up from
30.7 million filings from last year. The
IRS received 20.7 million paper filed
business returns.
The IRS Submission Processing Centers
were open, but not operating at full
capacity due to social distancing
requirements. The IRS is currently
opening mail within normal timeframes
and all paper and electronic individual
tax returns received prior to April 2021
have been processed providing the
return had no errors or did not require
further review.
Explanation of Results: In FY 2021, the individual e-File rate was
89.4%, which is 1.2% below the target of 90.6%, and 4.6% below the same
period last year. The percent of business returns filed electronically was
61.4%, which is 2% below the target of 63.4%, and 8.8% below the same
period last year. The percent of returns processed electronically is calculated
by dividing the number of electronically processed returns by the total number
of returns processed (the sum of paper and electronic). In FY 2020, due to
COVID-19, a large volume of paper receipts was not processed, resulting in
a higher-than-normal percent of returns processed electronically. The excess
paper receipts from FY 2020 were processed in FY 2021, resulting in a larger
number of paper returns processed compared to a normal year. This caused
the percent of returns filed to be below target.
Toll-Free Help Line/Level of
Service: New legislation resulted in
added, unplanned demand for the
toll-free phone line. At the end of FY
2021, the individual taxpayer telephone
demand was 52 million calls received,
an increase of 270%. Business taxpayer
telephone demand was 8.3 million calls
received, 189% higher than last year.
The number of taxpayers calling to
schedule appointments at TACs was
3.9 million above the same period last
year and call disconnects were 1,477%
more than the prior year at 4.1 million
Explanation of Results: In FY 2021 the CSR LOS was 18.5%, falling
short of the target. New legislation resulted in added, unplanned demand for the
toll-free phone lines. Total Assistor Demand was more than 200% higher than
in FY 2020 with some lines seeing increases of more than 2 million calls. Call
disconnects were 1,477% higher in FY 2021 at 4.1 million compared to 260,000
in FY 2020. Despite these challenges, the IRS was able to answer 3.8 million more
calls in FY 2021 than the prior year. The IRS continues to monitor demand in real
time, allocating resources and shifting between telephones and paper processing
to address demand during times of unprecedented call volume.
9
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
compared to 260,000 in FY 2020. CSR Level of Service (LOS), which is the percent of toll-free callers that
either speak to a customer service representative or receive informational messages in relation to the total
number of attempted calls, was 15.4% during the filing season and 18.5% for the fiscal year, which are at
record lows. While COVID-19 was the primary reason for the record low LOS in FY 2021, ever-increasing
volumes of taxpayer inquiries is the root cause of the trend. IRS leadership takes taxpayer service seriously
and is actively seeking solutions to improve taxpayer service.
During FY 2021, the IRS expanded the staffing at the Automated Collection System (ACS) site in Puerto
Rico to 264 employees and intends to have a full ACS operation of 420 employees in Puerto Rico by
the end of CY 2021. ACS employees conduct and receive calls from taxpayers with nonfiled returns or
unpaid tax liabilities. This hiring effort will increase the number of calls the IRS can answer and expand
the number of taxpayers the IRS is able to serve. These IRS employees will also bring much needed
bilingual assistance to taxpayers located across the continental U.S., while providing additional jobs to a
community hit hard by recent disasters. It is a “win-win” for taxpayers and the island of Puerto Rico.
Online Digital/Web Enhancements:
In FY 2021, the IRS expanded its online
applications, including the CTCUP,
AdvCTC, and Tax Professional Account.
The Tax Professional Account is a
secure self-service application that
enables tax professionals to complete,
electronically sign, and submit Power
of Attorney and Tax Information
Authorization requests to their clients’
individual OLA where taxpayers can
review, approve, and electronically sign
or reject the requests. Tax Professional
Account is the first all-digital platform fully integrated with electronic signature service, handling
end-to-end authorization processing in real-time, and saving time for taxpayers and tax professionals.
IRS.gov showed significant user traffic in FY 2021, with 7 of the top 10 highest-traffic days in IRS.gov
history. FY 2021 daily traffic peaked at 46.4 million user sessions – the third highest traffic day in history
– on March 15, 2021. The IRS updates content continuously to reflect taxpayer needs, new legislation,
the evolution of tax administration, and the distribution of information related to significant events, such
as EIPs, natural disasters, COVID-19 tax effects, and other circumstances. In addition, the IRS continued
to expand the availability of multilingual content on IRS.gov throughout FY 2021. The IRS completed the
IRS.gov “Top 100” initiative on November 12, 2020 and realized the translation of the 100 highest-traffic
pages on IRS.gov into seven additional languages: Spanish, Simplified Chinese, Traditional Chinese,
Russian, Vietnamese, Korean, and Haitian Creole. These pages join over 7,000 other pages of translated
content available on IRS.gov, creating a robust resource for taxpayers who want to meet their tax
obligations but who have limited English ability.
10
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Protect the integrity of the tax system by encouraging compliance through
administering and enforcing the tax code
One of the IRS’s highest priorities is to ensure taxpayers
follow the tax law. The IRS continues to develop innovative
approaches to understanding, detecting, and resolving
potential noncompliance to support taxpayer confidence
in the tax system. The IRS uses behavioral insights and
robust data analysis to address noncompliance in the most
proper way. The IRS assists taxpayers with navigating
through the process of issue resolution, ensure they are
aware of the Taxpayer Bill of Rights and the resources
available to them. While working to help taxpayers who
want to comply, the IRS will pursue those who intentionally
violate the tax code. This goal is primarily funded by the
Enforcement major budget account as presented in the
SBR.
Progress toward goal: In FY 2021, the IRS updated
identity theft models and modified filters to prevent
fraudulent tax refunds. Through intensive screening and
investigation, the IRS found and blocked
many attempted thefts of Treasury
funds, leading to multiple criminal
investigations and prosecutions.
The IRS also continued to support
the development of guidance on
international tax provisions to aid
taxpayers.
The following select activities and
programs highlight some FY 2021
efforts to protect the integrity of the tax
system by encouraging compliance
through administering and enforcing the
tax code.
Criminal Investigations and Cyber
Crimes: IRS Criminal Investigation
(IRS-CI) investigates potential criminal
violations of the Internal Revenue Code
and related financial crimes to enforce
accountability and maximize deterrence.
This includes money laundering,
currency violations, tax-related identity
theft fraud, and terrorist financing that
adversely affects tax administration.
In FY 2021, the IRS completed
StrategIc ObjectIVeS
. Identify and plan for compliance
risks proactively.
. Reduce the time between filing
and compliance issues resolution.
. Match potential compliance issues
to the most appropriate solution
informed by behavioral insights.
. Investigate criminal violations
of the tax code to enforce
accountability and maximize
deterrence.
Explanation of Results: Criminal Investigations Completed was 2,766,
exceeding the FY 2021 target of 2,600. Even though IRS-CI performed better
than originally expected and completed more cases this year compared to
FY 2020 (when COVID-19 had a larger impact on investigative activities),
results are still lower, compared to prior years (10.5% decrease compared to
FY 2017). COVID-19 continues to impact day to day investigative activities,
thereby contributing to a higher cycle time for investigations completed.
Additional factors such as years of steady decrease in the number of special
agents available to work cases (due to attrition and limited hiring) as well as
IRS-CI's focus on traditional tax case programs, continue to impact IRS-CI's
overall performance. Nevertheless, IRS-CI continues to utilize proven case
development strategies, expand case development efforts, and leverage
interagency partnerships to identify, initiate, and complete significant criminal
investigations in all program areas.
11
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
2,766 criminal investigations, achieved 1,263 convictions with a conviction rate of 89.4%, achieved a
Department of Justice case acceptance rate of 93.6% (cases accepted for prosecution), and a U.S.
Attorney case acceptance rate of 93.2%, which compares favorably with other federal law enforcement
agencies. In FY 2021, the IRS Cyber Crimes unit initiated 149 criminal investigations, completed 159
criminal investigations, had 51 convictions (85% conviction rate), and an 86% publicity rate, which
measures the extent of media coverage.
Improvements in Detecting and Resolving Abusive Tax Compliance Issues:
The IRS reinforced its commitment to bring focus and resources to pursuing those who promote and
use abusive tax shelters by creating a new Office of Promoter Investigations. The goals are to both
enforce the tax law and protect taxpayers from victimization by those who promote false statements
related to tax positions. The IRS developed strategies to address abusive tax compliance issues
such as Conservation Easements (including Syndicated Conservation Easements), Research and
Experimentation Tax Credits, Captive Insurance (including Micro-Captives), and Offshore entities.
In addition, the IRS's Innovation Lab Data Analytics Program identified thousands of taxpayers who
reported wages on their individual income tax returns, but the associated payer of those wages did not
file their W-2s with the SSA and did not file employment tax returns.
Transfer Pricing and Tax Uncertainty: The IRS is continuing to execute on its international
compliance strategy as it relates to transfer pricing, which involves the pricing of goods, services,
and intellectual property transferred between related entities of multinational enterprises (typically
corporations with a common parent company). When these transactions involve transfers between
a U.S. and foreign related entity, tax issues arise over how much income should be reported in each
country. The U.S. and foreign tax administrations have complex tax rules about how to determine
intercompany pricing which leads to how much taxable income should be reported in each country.
By shifting profits to jurisdictions with lower tax rates, multinational enterprises may attempt to
inappropriately avoid U.S. income taxes. It is an area of significant tax controversy. The efforts of the
Transfer Pricing Risk Assessment (TPRA) team are key to guiding case selection to the most appropriate
treatment stream. TPRA applies data analytic techniques to return information to efficiently identify
potential transfer pricing issues for suitability considerations such as the multilateral risk assessment
forum of the Organization for Economic Cooperation and Development (OECD) International Compliance
Assurance Program, the U.S. Domestic Compliance Assurance program, or the Large Corporate
Compliance program. The IRS compliance enforcement strategy also recognizes the importance of
leveraging recent judicial guidance related to transfer pricing issues, which feed into the IRS case
selection process.
Robust efforts to prevent and resolve transfer pricing and other disputes that are eligible for competent
authority assistance under U.S. tax treaties complements the IRS’s efforts to enhance transfer pricing
risk assessment and compliance strategies. Many of these efforts during FY 2021 have focused on the
transfer pricing and tax uncertainty caused by worldwide macroeconomic and commercial conditions.
Acting in its role as the United States competent authority, the IRS has been a leading voice of clarity
and principle in the handling of these issues within the OECD’s Forum on Tax Administration and a
champion of engagement, coordination, and collaboration between taxpayers and tax administrations
worldwide. The IRS will remain at the center of these international efforts in the interest of tax certainty
for taxpayers and governments for years to come.
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IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Collaborate with external partners proactively to improve tax administration
The IRS is committed to strengthening and expanding
its partnerships, keeping open lines of communication
with stakeholders, and engaging them as collaborators.
The IRS is part of a community that includes a variety
of stakeholders invested in and affected by tax
administration. The IRS also works with partners beyond
the traditional tax community — including government
entities (international, federal, state, local and tribal), the
private sector, universities, and volunteer organizations as
it delivers its mission. This goal is primarily funded by the
Taxpayer Service major budget account as presented in
the SBR.
Progress toward goal: In FY 2021, the IRS continued
StrategIc ObjectIVeS
. Coordinate with the tax
community to facilitate service and
outreach to taxpayers.
. Pursue partnerships to tackle
common challenges, generate
cost savings and share leading
practices.
. Expand partnerships with foreign
governments and international
organizations to address global
tax compliance concerns.
to expand relationships outside the traditional outreach
and communication channels to deliver messages about
the filing season, tax scams, COVID-19 tax relief, and
other topics. The IRS also continues its efforts to improve
outreach to the underserved, millennials, and those who speak English as a second language.
The following select activities and programs highlight some FY 2021 efforts to collaborate with external
partners proactively to improve tax administration.
International Tax Compliance: In FY 2021, IRS-CI led a multi-national delegation
on the development of a Financial Technologies Toolkit that will publish a learning
module to help countries develop and conduct investigations involving illicit
financial transactions through cryptocurrencies. The IRS also began coordinating
an informal agreement between the United States and Colombia, which recently
criminalized tax offenses, to develop a partnership under the joint OECD/United
Nations initiative called Tax Inspectors Without Borders. This partnership and
agreement include formal and informal training and the sharing of best practices. To date,
developing nations have collected more than a billion dollars in tax revenues due to this initiative.
Security Summit: The Security Summit, a public-private sector partnership between
the IRS, state revenue departments, software developers, tax professionals, and
financial services groups, is now in its sixth year of establishing repetitive iterative
processes that support taxpayer security initiatives. During FY 2021, the Security
Summit focused on reducing taxpayer burden and improving tax identity theft
detection through exploring added collaborative efforts with the Information Sharing
and Analysis Center (ISAC) and opportunities with stakeholders to further combat tax identity theft and
fraud. The IRS made significant progress through collaboration and enhancements to its tax identity theft
detection processes. Since partnering with the Security Summit, the IRS has prevented more identity theft
than in previous years and as a result, its data analytics are detecting fewer fraudulent refund claims.
13
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Cultivate a well-equipped, diverse, flexible, and engaged workforce
The IRS is committed to planning, delivering, assessing,
and managing its workforce effectively. Taxpayer service,
enforcement, and business modernization efforts require a
strong workforce. Supplying end-to-end accountability and
promoting partnerships to support customers and operational
goals ensures consistent service delivery throughout the
human resources lifecycle to effectively attract, develop,
and support a world-class workforce. This goal is primarily
funded by the Operations Support major budget account as
presented in the SBR.
Progress toward goal: The IRS recently developed a
comprehensive training strategy to address requirements
of the Taxpayer First Act (TFA) and to support employee
development with training opportunities and clear career
paths. The IRS implemented a project entitled “HCO 2022” to
define and implement a new human resource delivery strategy
for IRS employees.
StrategIc ObjectIVeS
. Foster a collaborative and inclusive
culture.
. Support employee development
with training opportunities and
clear career paths.
. Enhance succession planning and
knowledge transfer processes.
. Design a talent management
strategy that proactively addresses
business needs and adjusts to
workload demand.
The following select activities and programs highlight some FY 2021 efforts to cultivate a well-equipped,
diverse, flexible, and engaged workforce.
State of the IRS Workforce: In FY
2021, the IRS employed about 81,600
employees, including 10,530 temporary,
seasonal, and part-time staff. The IRS
developed policies, strategies, and
processes for more than 5,000 IRS
employees, who conduct non-portable,
mission-critical work, to return to the
workplace. This effort sustained tax
administration activities for America's
taxpayers. The ARP and the TFA
require an added complexity, a new set
of responsibilities, and new resource
requirements to the IRS’s hiring efforts. As of September 30, 2021, the IRS hired more employees than in any
of the previous five years, with over 10,700 new external hires.
Knowledge Management & Transfer Program: The IRS Knowledge Management and Transfer
Program centers around four critical pillars: Share, Connect, Learn, and Improve. This program captures
organizational knowledge to create a smarter, more efficient, and well-informed workforce. It uses a shared
platform and standardized tools, resources, and processes with the goal of cultivating collaboration and
knowledge sharing to build organizational expertise. Some tools and services include a Centralized Virtual
Library with more than 112 knowledge bases, which IRS employees visited more than nine million times
since its start in 2017 and a Self-Help Online Tutorial Video Library, consisting of more than 600 videos and
nearly 600,000 employee views in the past five years.
14
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Advance data access, usability, and analytics to inform decision-making and
improve operational outcomes
The IRS strives to operate more efficiently, provide superior
service to taxpayers and their representatives, and ensure
successful implementation of changes in tax laws. Using
analytics, the IRS works continuously to improve its
operations: taxpayer service, enforcement efforts, and its
internal operations support functions. This goal is primarily
funded by the Operations Support and Enforcement major
budget accounts as presented in the SBR.
Progress toward goal: In FY 2021, the IRS made
significant strides in using data analytical tools to improve
the taxpayer experience.
The following selected activities and programs highlight
some FY 2021 efforts to advance data access, usability,
and analytics to inform decision-making and improve
operational outcomes.
StrategIc ObjectIVeS
. Update data collection and
retrieval capabilities and processes
to provide faster authorized
access to information.
. Improve analytical tools and data
competencies across the IRS.
. Emphasize the use of data
analytics, in conjunction with
qualitative information, to select
high-priority work.
Digitalization Strategy: The IRS is moving forward with its digitalization strategy. The strategy allows
flexibility within inventory management, electronic workflows,
and business continuity. It also allows for seamless access
to taxpayer imaged cases without added burdens on the
taxpayer to supply documents. This transparency reduces risk
for both taxpayers and the IRS. In FY 2021, the IRS continued
implementation of Taxpayer Digital Communication – Outbound Notifications (TDC-ON), which supplies
a platform to enable the delivery of digital correspondence. In FY 2021, TDC-ON completed and
released the top 11 highest priority notices. Also, in FY 2021 the IRS started a Documentation Upload
Tool (DUT) pilot for the Automated Questionable Credit inventory. The DUT is a fast-paced development
for a new digital channel which supplies the taxpayer with a choice to upload their responses to IRS
notices to IRS.gov using their personal computer or mobile device, in lieu of responding by mail or eFax.
The IRS plans to introduce the DUT in phases with later iterations expanding into more workstreams.
15
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Analytics-Driven Operational
Improvements: The IRS continuously
reviews, synthesizes, and shares
analytics from IRS.gov to assess
taxpayer experiences with IRS digital
content. In FY 2021, the IRS continued
to track user feedback related to EIPs
and has tracked feedback on the new
AdvCTC payments.
The IRS also reviewed and updated
SharePoint Investment Knowledge
Exchange performance metrics for the
OLA. One of these metrics is the percentage of visits where taxpayers can view their cumulative balance
due, shown on the home page when users log into OLA. The IRS experienced a challenge with this metric,
which occurred when the first round of EIPs created a new data entry in the tax database. This prevented
users from seeing their balance until the IRS was able to successfully address this technical issue, which
took about two months. This year when ARP authorized more EIPs, the same issue would have occurred,
but the IRS worked quickly to implement a solution on the first day of disbursing the added EIP payments.
This ensured that taxpayers’ ability to access their balance data and the associated performance metrics
would be unaffected beyond that one day.
Drive increased agility, efficiency, effectiveness, and security in IRS operations
An increased reliance on technology creates the need for
increased security, both physical and digital, to protect
IRS employees and taxpayer information from threats. The
IRS understands its responsibility to safeguard taxpayer
and IRS data, particularly given the growing incidence and
sophistication of cyber and identity theft. The IRS remains
dedicated to maintaining the physical and digital security
of its systems, enhancing internal controls, managing risk,
and upholding accountability across the IRS. This goal
is primarily funded by the Operations Support and Other
major budget accounts as presented in the SBR.
Progress toward goal: In FY 2021, the IRS made
notable progress on implementing the TFA, its Integrated
Modernization Business Plan, and a new physical security
strategy.
The following selected activities and programs highlight
some FY 2021 efforts to drive increased agility, efficiency,
effectiveness, and security in IRS operations.
16
StrategIc ObjectIVeS
. Modernize and integrate
technologies and systems
that support secure, flexible
and accurate work across IRS
functions.
. Safeguard taxpayer data and
protect the IRS against internal
and external threats, with an
emphasis on cyber defense.
. Maintain a strong focus on fiscal
management and accountability.
. Simplify policies and processes
to improve operational efficiency
and coordination across business
units.
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Progress on Taxpayer First Act Implementation: The IRS published the Taxpayer First Act Report
to Congress, which documents three of IRS’s strategies for advancing service to taxpayers:
1. Improving
the Taxpayer
Experience
2. Enhancing
Employee
Training
3. Modifying the
Organizational
Structure
Throughout FY 2021, the IRS has made advancements in improving the taxpayer experience strategy.
The IRS implemented a host of provisions to strengthen cybersecurity and identity protection through
nationwide expansion of the Identity Protection Personal Identification Number (IP PIN) program
across all 50 states (three years earlier than the legislatively mandated date), expanded the use of
electronic systems, and increased digitalization by enabling the use of digital signatures and online
identity verification for eServices accounts. In addition, the IRS completed several actions in FY 2021
to move forward in implementing a comprehensive training strategy. The full report includes both nearterm operational plans and a long-term aspirational vision to reshape the future of the IRS. The IRS
NEXT office will lead the IRS beyond implementation of the TFA provisions and will focus on both the
design and implementation of a revitalized IRS organization, ensuring all activities occur in a strategic,
integrated approach.
Modernization plan: The IRS made significant progress delivering on the commitments in the IRS
Integrated Modernization Business Plan, as well as the fundamental responsibilities to deliver and
protect the solutions and services that support the nation’s tax system. However, since the IRS received
only 55% of the requested funding, replanning of capabilities was necessary. With this replanning, the
IRS delivered 19 modernized capabilities in FY 2019, 40 modernized capabilities in FY 2020, and 29
modernized capabilities in FY 2021. Highlighted capabilities in FY 2021 include: delivery of Enterprise
Case Management Release 1, expansion of Customer Callback to total 16 phone applications, release
of TDC-ON priority notices to taxpayers, completion of 69% of code conversion for the Individual Tax
Processing Engine project, and deployment of CTCUP.
Physical Security: The IRS worked diligently to implement a physical security strategy, which included
the accomplishment of four goals:
1. Provide IRS with security related tools, training, mechanisms, and processes to improve workforce
effectiveness, agility, and retention.
2. Implement and monitor the effectiveness of physical security policies, procedures, and internal
controls by crafting effective management tools to ensure appropriate monitoring of all aspects of the
physical security programs.
3. Distinguish and recognize varying levels of security related performance and ensure employee
accountability.
4. Coordination amongst all the functional areas involved in physical security. The security related
improvements reduced burden, enhanced monitoring efficiency, and increased data reporting
reliability of security programs for program owners and managers.
17
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
ENTERPRISE RISK MANAGEMENT
In compliance with the OMB Circular A-123, Management’s Responsibility for Enterprise Risk
Management and Internal Control, the IRS conducts an annual Enterprise Risk Assessment and
develops an Enterprise Risk Profile. The Enterprise Risk Profile articulates the IRS’s top risks to achieving
its strategic goals. Having a clear line of sight into the top enterprise risks enables IRS leadership to
make informed decisions that will encourage innovation, foster change, and lead to more efficient
resource allocation. The annual enterprise risk assessment process includes internal and external
environmental scanning activities and a comprehensive aggregation and analysis of business unit risks.
The IRS updated the 2021/2022 Enterprise Risk Profile to reflect an environment that includes significant
COVID-19 effects to the IRS workforce and operations and the successful implementation of pandemicrelated legislations, signaling the road to recovery. The top IRS Enterprise Risks are:
1. Adverse Impact of Reduced Enforcement on Compliance: The risk that reduced enforcement
activities may hurt compliance, erode confidence in the tax administration system, and contribute to
the tax gap.
2. Impact and Implementation of Legislation and Other Requirements: The risk that failure to
timely and effectively implement an increasing number of complex multi-year legislative and
non-statutory requirements may adversely affect the IRS’s ability to fulfill core responsibilities and
commitments to modernize technology, enhance service delivery and more effectively enforce the
tax law, which will ultimately erode trust and confidence in the IRS. Significant legislative mandates
currently include TFA, CARES Act, CRRSAA, and ARP.
3. IT Operations and Maintenance Budget Reductions: The risk that IRS Information Technology
(IT) Operations and Maintenance budget reductions will affect the ability to run and support critical IT
systems and lead to increased system downtime when issues occur.
4. Impaired Operations: The risk that significant disruptions, such as disasters or lapses in
appropriations, combined with a reliance on paper, manual, and in-person processes, results in halted
or slowed operations and recovery hindering the IRS’s ability to successfully deliver its mission and
make progress in critical areas.
5. Taxpayer Experience: The risk that the inability to execute and improve customer experience,
combined with increased demand for services, may negatively affect taxpayers’ ability to meet their
tax obligations and erode trust and confidence in the IRS.
6. Cyber and Data Security: The risk that the increased complexity, sophistication, and volume of
cyber threats, including insider threats, social engineering, and unauthorized access to or use of
sensitive information results in data loss, refund fraud, identity theft, ransomware, or denial of service.
18
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
LOOKING TO THE FUTURE
Whether responding to a crisis like the pandemic or fulfilling routine responsibilities, the work done
by the IRS for taxpayers each day illustrates the importance of every American to the IRS, and the
importance of the IRS to every American. But we want to do more. As we move into FY 2022, our efforts
will be focused on improving our service to taxpayers and the tax system in every area. Along the way,
we must ensure we have the trust and respect of the taxpayers we serve and others who interact with
us. To accomplish this, we will always exercise our best efforts on behalf of the American people.
Looking to the future, for the IRS to be successful we must continue to measure the value of taxpayer
services through the eyes of the taxpayer. We will continue striving to put taxpayers first and enhance
their experience through improved tools, education, guidance, and outreach. We will remain focused on
assisting historically underserved communities, including underrepresented, lower-income, and limited
English proficiency taxpayers. In these and many other ways, we view our efforts through the experience
of those we proudly serve.
A critical component of our future efforts will be the ongoing work to modernize our systems. We will
continue to implement the IRS Integrated Business Modernization Plan, which has guided our efforts
in this area since we issued it in 2019. We will continue to deliver capabilities that enhance every
perspective of the taxpayer experience. Taxpayers have a right to expect, and we want to deliver, the
same kind of cutting-edge services they are used to receiving from their financial institution or online
retailer.
Going together with modernization, the critical work we will be doing as part of IRS NEXT in the months
and years to come will provide across-the-board service improvements in a cost-effective manner,
for taxpayers and tax professionals alike. The IRS NEXT initiatives will make it quicker and easier for
taxpayers to file a return, answer a notice from us, or pay a tax bill, improving tax administration and
making the tax system run more efficiently, which helps everyone.
Our ultimate goal, of course, is to do a better job of serving taxpayers and the nation, and IRS NEXT
will be the catalyst that allows us to achieve this goal. Since the IRS interacts with more Americans than
nearly any other public or private organization, it is vital that we continue to improve in every aspect of
our operations. The taxpayers we serve deserve nothing less.
Next year will be important for our future planning efforts for another reason: We will unveil a new
Strategic Plan for the agency, covering the years 2022 through 2026. As in the past, the Strategic Plan
will serve as a roadmap to help guide the agency’s programs and operations. It will lay out a vision of
ways to help improve our tax system and meet the changing needs of taxpayers and members of the tax
community.
We remain confident the IRS will continue to deliver for our country, just as we have during other
times of national urgency. We will continue striving to meet the challenges ahead with innovation and
dedication. And we look forward to continuing this journey together with taxpayers and our partners in
the tax community. Their ongoing support has been critical to our success. The entire IRS workforce is
committed to working hard, doing our best, and doing the right thing for America’s taxpayers – now and
in the future.
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IRS FY 2021 | Financial Report
Management's Discussion and Analysis
ANALYSIS OF SYSTEMS, LEGAL COMPLIANCE, AND INTERNAL CONTROL
Federal Managers’ Financial Integrity Act (FMFIA)
Background
The FMFIA requires executive branch agencies to establish and maintain internal control and financial
systems to provide reasonable assurance that:
. Obligations and costs comply with applicable laws.
. Funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or
misappropriation.
. Revenues and expenditures applicable to agency operations are properly recorded and accounted
for to permit the preparation of accounts and reliable financial and statistical reports, and to maintain
accountability over the assets.
OMB Circular A-123 provides implementing guidance for FMFIA and defines management’s
responsibility for establishing and assessing internal controls. The Circular also requires federal agencies
to adhere to the GAO's Standards for Internal Control in the Federal Government, and to evaluate and
report on the effectiveness of the organization’s internal controls to achieve: (1) the objectives of effective
and efficient operations, (2) reliable reporting for internal and external use, and (3) compliance with
applicable laws and regulations (FMFIA Section 2). Additionally, agencies are required to assess whether
financial management systems comply with federal financial management systems requirements (FMFIA
Section 4).
Analysis of Controls
The Commissioner’s Assurance Statement is supported by a comprehensive risk-based internal control
evaluation plan that adheres to Treasury guidance. This plan includes a methodology that identifies
and documents key controls and provides for the assessment and testing of those controls to provide
reasonable assurance that the controls are designed, implemented, and operating effectively. As part of
the evaluation process, the IRS considered results of this extensive testing and assessment across the
IRS, as well as independent audits conducted by TIGTA and GAO.
Internal Control over Financial Reporting
In accordance with OMB Circular A-123, Appendix A, Management of Reporting and Data Integrity Risk,
the IRS also assessed internal controls over financial reporting. The IRS applied Treasury’s Appendix
A guide to assess the effectiveness of its internal controls by testing the design, implementation, and
operating effectiveness of key internal controls for material transactions to support reliable financial
reporting. Based on the results of this assessment the IRS can provide reasonable assurance regarding
the effectiveness of our internal control over financial reporting as of September 30, 2021.
20
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Federal Financial Management Improvement Act (FFMIA) and Financial Management
Systems
The FFMIA requires federal agencies to implement and maintain financial management systems that
substantially comply with federal financial management systems requirements, applicable federal
accounting standards, and the U.S. Standard General Ledger at the transaction level. As described in
OMB Circular A-123, Appendix D, “a financial management system includes an agency’s overall financial
operation, reflecting the people, processes, and technology to capture, classify, summarize, and report
data in a meaningful manner to support business decisions.”
The FFMIA Section 803(c)(1) requires an annual determination of substantial compliance with Section
803(a) of the Act based on review of relevant factors. To support this determination, the IRS assesses its
financial management systems annually for conformance with the requirements of OMB Circular A-123,
Appendix D, Compliance with the FFMIA, and other federal financial management system requirements.
Our assessment process includes the use of the FFMIA Compliance Determination Framework,
(Compliance Framework) in OMB Circular A-123, Appendix D, which is a risk and evidence-based
assessment model that leverages existing audits, evaluations, and reviews that auditors and agency
management already perform. The Compliance Framework is an outcome-based approach to assessing
FFMIA compliance through a series of financial management goals that are common to all agencies.
In applying the Compliance Framework, the IRS assesses available information from audit reports
and other relevant and appropriate sources, such as the Federal Information Security Modernization
Act compliance activities, to determine whether our financial management systems substantially
comply with FFMIA. The IRS also assesses improvements and ongoing efforts to strengthen financial
management systems and the impact of instances of noncompliance on overall financial management
system performance. Based on the results of our overall assessment, the IRS concluded that its financial
management systems were not substantially compliant with federal financial management system
requirements as of September 30, 2021, due to significant deficiencies.
The IRS has two significant deficiencies in internal control over financial reporting related to its unpaid
assessments and financial reporting systems. Specifically, these deficiencies relate to (1) limitations
in the ability of IRS’s financial management systems to classify unpaid assessments and report taxes
receivable in accordance with federal accounting standards, and (2) IRS’s information system business
process application controls and general controls related to financial reporting systems. The IRS worked
diligently during FY 2021 to continue to enhance its IT security posture and continues to implement
a strategy and assessment process to verify the effectiveness of internal controls for the financial
systems that affect the financial statements. This assessment supports the IRS’s overall internal control
framework and helps mitigate deficiencies in the IT environment.
Other Laws
The IRS is required to comply with several legal and regulatory requirements, including the Antideficiency
Act. The Management Control Executive Steering Committee, which includes top IRS administrative
and programmatic leadership, provides oversight and governance for the design, implementation, and
monitoring of controls to comply with these legal and regulatory requirements. The IRS is not aware of
any violations of the Antideficency Act.
21
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
MANAGEMENT ASSURANCES
The IRS’s management is responsible for managing risks and maintaining effective internal control and
financial management systems to meet the objectives of FMFIA. We conducted our assessment of risk
and internal controls in accordance with OMB Circular A-123.
Based on our assessment, we can provide reasonable assurance that, in accordance with Section
2 of the FMFIA, the IRS’s internal control over operations, reporting, and compliance with laws and
regulations were operating effectively as of September 30, 2021. This includes the effective operation of
internal control over financial reporting, which was considered a part of our assessment. In addition, we
can provide reasonable assurance that as of September 30, 2021, we are in substantial conformance
with the federal financial management systems requirements of Section 4 of the FMFIA, except for two
significant deficiencies related to the unpaid assessments and financial reporting systems.
As a result of these significant deficiencies, our financial management systems are not in substantial
compliance with the FFMIA as of September 30, 2021. We continue to make progress in remediating
these deficiencies and remain committed to focusing management’s attention and resources on
appropriate corrective actions. Overall, we continue our efforts to ensure high standards, minimize
internal control weaknesses, and meet federal financial management requirements. Additional
information on the deficiencies can be found in Part 3, Section C, of this report.
Charles P. Rettig
Commissioner of the Internal Revenue Service
November 8, 2021
22
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
FINANCIAL MANAGEMENT HIGHLIGHTS
The IRS received an unmodified financial statement audit opinion for the 22nd consecutive year.
The unmodified opinion includes recommendations to improve internal controls over financial reporting
related to unpaid assessments and financial reporting systems. The IRS worked diligently during
FY 2021 to continue to enhance its IT security posture and continues to implement a strategy and
assessment process to verify the effectiveness of internal controls for the financial systems that affect
the financial statements. Management’s responses to risks are discussed in the Analysis of Systems,
Legal Compliance, and Internal Controls and the Looking Ahead to 2022 sections of the Management’s
Discussion and Analysis.
Management provides assurance for the review and assessment of Internal Controls over Financial
Reporting with a report that is issued annually to the Secretary of the Treasury. This report is included on
the following page to demonstrate the review of internal controls that support these financial statements.
23
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
November 8, 2021
IRS Management’s Report on Internal Control Over Financial Reporting
Fiscal Year 2021
November
2021
The Internal Revenue Service's (IRS’s) internal
control 8,
over
financial reporting is a process effected
by those charged with governance and management, as well as other personnel with related
IRS Management’s Report on Internal Control Over Financial Reporting
responsibilities. The objectives of this process are to provide reasonable assurance that: (1) transactions
Fiscal Year 2021
are properly recorded, processed, and summarized to permit the preparation of financial statements in
accordance
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is a against
loss fromprocess
unauthorized
acquisition,
use, or disposition;
and (2)
transactions
are executed
accordance
effected
by those charged
with governance
and
management,
as well asinother
with provisions
of applicable
laws,
including those
use process
of budgetare
authority,
regulations,
personnel
with related
responsibilities.
Thegoverning
objectivesthe
of this
to provide
reasonable
that:
(1) transactions
are
properly
recorded,
processed,
and
contracts,
and grant assurance
agreements,
noncompliance
with
which
could
have a material
effect
on the financial
summarized to permit the preparation of financial statements in accordance with U.S.
statements.
Generally Accepted Accounting Principles, and assets are safeguarded against loss
from
unauthorized
acquisition,
use, or disposition;
and (2)control
transactions
are executed
in
IRS management
is responsible
for maintaining
effective internal
over financial
reporting,
accordance with provisions of applicable laws, including those governing the use of
including the design, implementation, and maintenance of internal controls relevant to the preparation
budget authority, regulations, contracts, and grant agreements, noncompliance with
and fair presentation
of financial
statements
that
free from
material misstatement, whether due to
which could have
a material
effect on
theare
financial
statements.
fraud or error. IRS management evaluated the effectiveness of the IRS's internal control over financial
reportingIRS
as of
September is
30,responsible
2021, based
the criteriaeffective
established
under
31 U.S.C.
3512(c), (d)
management
foron
maintaining
internal
control
over financial
reporting,
the design,
implementation,
and maintenance
of internal controls
(commonly
known including
as the Federal
Managers'
Financial Integrity
Act).
relevant to the preparation and fair presentation of financial statements that are free
from
misstatement,
whether
to fraud or error.
IRS the
management
evaluated
Based on thatmaterial
evaluation,
we conclude
that asdue
of September
30, 2021,
IRS’s internal
control over
the
effectiveness
of
the
IRS's
internal
control
over
financial
reporting
as
of
September
financial reporting was effective. The IRS has two deficiencies in its internal control over financial
30, 2021, based on the criteria established under 31 U.S.C. 3512(c), (d) (commonly
reporting, for Unpaid Assessments and Financial Reporting Systems, which we are actively addressing.
known as the Federal Managers' Financial Integrity Act).
Based on that evaluation, we conclude that as of September 30, 2021, the IRS’s
internal control over financial reporting was effective. The IRS has two deficiencies in its
internal control over financial reporting, for Unpaid Assessments and Financial
Reporting Systems, which we are actively addressing.
Digitally signed by
Charles P.
Charles P. Rettig
Rettig
________________________
_ __________
November 8, 2021
Date
Charles P. Rettig
Commissioner of Internal Revenue
Jeffrey J.
Digitally signed by
Jeffrey J. Tribiano
Tribiano
________________________________
Jeffrey J. Tribiano
Deputy Commissioner, Operations Support
Digitally signed by
Hunter
_________________Teresa
_______R.
________
Teresa R. Hunter
November 8, 2021
Date
November 8, 2021
Date
Teresa R. Hunter
Chief Financial Officer
24
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Financial Statement Overview
The principal financial statements are prepared to report the financial position, financial condition, and
results of operations, pursuant to the requirements of 31 U.S.C. Section 3515(b). The statements are
prepared from records of federal entities in accordance with Federal generally accepted accounting
principles (GAAP) and the formats prescribed by OMB. Reports used to monitor and control budgetary
resources are prepared from the same records. Users of the statements are advised that the statements
are for a component of the U.S. Government.
The IRS is responsible for the administration of tax laws and the custodial collections of taxes for the
U.S. Federal Government. The financial management activities that support the responsibilities of the
IRS are divided into two distinct account categories.
Administrative accounts are included as appropriations and offsetting collections in the SBR. These
resources are also reflected as assets, liabilities, costs, revenues, and ultimately the net position of the
IRS.
Custodial accounts include activity in support of tax collection. The IRS is the custodian for the majority
of receipts for the U.S. Federal Government. These receipts are accounted for in designated custodial
accounts as presented on the Statement of Custodial Activity (SCA). Custodial accounts are also
included as custodial Fund Balance with Treasury (FBWT) prior to distribution as refunds or credits, taxes
receivable not yet collected, and taxes payable not yet disbursed on the Balance Sheet.
COVID-19 Legislation
In FY 2021 the IRS received supplemental funding for the ARP for $1,862 million and the CRRSAA for
$509 million in budgetary resources totaling $2,371 million for FY 2021. The budgetary resources were
appropriated for annual, two-year, and three-year availability. In FY 2021, the IRS distributed a second
and third round of EIPs in addition to AdvCTC payments in accordance with legislation. This activity is
presented on the SCA under federal tax refund and outlay activities.
Financial statement fluctuations resulting from this activity are discussed in more depth in the applicable
financial statement analysis. Note 21 COVID-19 Activity in the Financial Information section of this
report also provides information for budgetary resources, obligations incurred, the remaining available
budgetary resources and specific note disclosure data for FY 2021 and FY 2020.
Financial Statement Analysis
Analysis of the Balance Sheet
The Balance Sheet displays amounts of future economic benefits owned or available for use (assets),
amounts owed (liabilities) and the residual amounts (net position) at the end of the fiscal year.
25
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Assets of the IRS are primarily comprised of Federal taxes receivable, intragovernmental balances,
FBWT and Due from the General Fund of the U.S. Government, and Internal Use Software classified as
General Property and Equipment. Comparative asset balances as of September 30, 2021 and 2020 are
presented below.
Asset fluctuations in FY 2021 primarily include increased Federal taxes receivable, net, increased FBWT,
increased Due from the General Fund and increased Cash and other monetary assets.
Federal taxes receivable, net, increased $66,446 million in FY 2021 as compared to FY 2020. This
increase is primarily due to the two-year deferral on the employer portion of Federal Insurance
Contributions Act (FICA) Social Security taxes due to the federal government provided under the CARES
Act. These deferrals are discussed in greater detail in Note 5 Federal Taxes Receivable, net of the
Financial Information section of this report.
Intragovernmental increases are primarily due to $1,993 million FBWT associated with the supplemental
appropriations received for the ARP and CRRSAA and $2,498 million Due From the General Fund as
this line items correlates to Federal Tax Refunds Payable, net. Amounts Due From the General Fund
represent funds that will be used as a resource to disburse federal tax refunds.
Liabilities include Intragovernmental (payables, Amounts due to the General Fund, and Other Liabilities),
Federal Tax Refunds Payable, Federal Employee Benefits, and other liabilities as detailed in Note 8 of the
financial information section of this report.
26
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Liability fluctuations in FY 2021 primarily include increased Intragovernmental liabilities and Federal
taxes payable.
The increase in Intragovernmental liabilities is primarily attributable to an increase of $66,446 million for
the Due to the General Fund balance sheet line item. This line item is representative of funds that will
be distributed to the General Fund upon collection and is directly attributable to the increase in Federal
taxes receivable, net.
The increase in FY 2021 Federal tax refunds payable of $2,498 million corresponds to an overall increase
in disbursements, also associated with COVID-19 relief and increased operations as compared to FY
2020 when we were operating at a reduced capacity.
Net Position consists of Unexpended Appropriations and the Cumulative Results of Operations.
Funds made available by Congress are recorded in Unexpended appropriations. Cumulative Results
of Operations is the net difference between 1) expenses, losses, and transfers out from the inception
of an agency or activity, and 2) financing sources such as appropriations and revenues, and gains from
the inception of an agency or activity (whether financed from appropriations, transfer in, revenues,
reimbursements, or any combination of the four) to the reporting date of the financial statements.
The Net Position of the IRS increased 72% in FY 2021 due to appropriations received for the
implementation of COVID-19 related legislation .
Analysis of the Statement of Net Cost
The Statement of Net Cost (SNC) presents the annual cost of operating the IRS four major programs:
Taxpayer Assistance and Education, Filing and Account Services, Compliance, and Administration of Tax
Credit Programs. Net cost includes gross costs incurred less exchange revenue earned from user fees
and reimbursable agreements.
The Total Net Cost of IRS operations increased $1,238 million or 9% over the prior fiscal year. The SNC
reflects a total of $14,837 million for the period ending September 30, 2021 as compared to $13,599
million for the period ending September 30, 2020.
27
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
The total gross cost for FY 2021 increased by $1,417 million due to the cost of implementing COVID-19
related legislation including the CRRSAA and ARP. Total earned revenue increased $179 million due
to increases in user fees and reimbursable agreements with Treasury and other agencies. In addition,
the Private Debt Collection program recognized collections as exchange revenue for the portion of
collections that fund IRS payments to the private collection agencies.
Comparative Net Cost of Operations by major program are presented in the table below for the periods
ending September 30, 2021 and 2020.
Analysis of the Statement of Budgetary Resources
IRS operations are financed through appropriations, spending authority from offsetting collections, and
unobligated balances carried forward.
Appropriations for the Periods Ending September 30, 2021 and 2020 (in Millions)
$
Taxpayer Services
Enforcement
Operations Support
Other:
Business Systems Modernization
Private Debt Collection Program
Miscellaneous Retained Fees
Total Other
Total Budgetary Resources
$
2021
3,208
5,004
5,583
752
220
133
1,105
14,900
$
$
2020
2,892
4,993
4,215
195
152
261
608
12,708
Major Budget Account Descriptions
Taxpayer Services funds the necessary expenses of the IRS to provide taxpayer services, including
pre-filing assistance and education, filing and account services, taxpayer advocacy services, low-income
taxpayer clinic grants, and Community Volunteer Income Tax Assistance Matching Grants for tax return
preparation assistance.
28
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
Enforcement funds the necessary expenses for tax enforcement activities of the IRS to determine and
collect owed taxes, to provide legal and litigation support, to conduct criminal investigations, to enforce
criminal statutes related to violations of internal revenue laws and other financial crimes.
Operations Support funds the necessary expenses of the IRS to support taxpayer services and
enforcement programs, which includes rent payments, facilities services, printing, postage; physical
security, headquarters and other IRS-wide administration activities, research and statistics of income,
telecommunications, information technology development, enhancement, operations, maintenance, and
security.
Business Systems Modernization funds the necessary expenses of the IRS's business systems
modernization program for the capital asset acquisition of information technology systems.
The Private Debt Collection Program funds qualified tax collection contracts to use private collection
agencies.
The IRS Total Budgetary Resources increased $2,569 million in FY 2021. This increase was primarily
attributable to appropriations received for COVID-19 related legislation including $1,862 million for the
ARP and $509 million for the CRRSAA. The Unobligated balance from prior year authority increased
$411 million as it includes the Families First Coronavirus Response Act of 2020 (FFCRA) and CARES Act
carryover funding. The increased obligations of $1,405 million and outlays of $1,119 million are also tied
to expenditures for COVID-19 related legislation.
Analysis of the Statement of Custodial Activity
The SCA is the presentation of custodial revenues, appropriations, and distributions that occur for the
current and prior fiscal year. This activity is performed on behalf of the federal government. The custodial
appropriations presented on the SCA are not available to the IRS for operational expenditures and are
therefore not included in the presentation of the SBR. Additional information relative to the fluctuations
discussed below is provided in the Other Information section of this report.
29
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
FY 2021 revenue receipts collected by the IRS totaled $4.1 trillion, a $600 billion increase from $3.5
trillion in FY 2020. Federal tax revenues are collected through six major classifications: Individual income
(FICA/Self-Employment Contributions Act (SECA) and Other), corporate income taxes, excise taxes,
estate and gift taxes, railroad retirement taxes, and federal unemployment taxes.
The SCA also presents refund and outlays made by the IRS on behalf of the federal government. Refund
and outlay activities were $1.1 trillion for the period ending September 30, 2021, as compared to $736
billion for the period ending September 30, 2020. This 49% increase in activity was primarily driven by
the $570 billion in COVID-19 EIPs paid under the CARES Act, CRRSAA, and the ARP, which included
provisions to help stimulate the economy through EIPs and/or RRCs.
Federal tax refunds and outlay activity include refunds of tax overpayments, payments for interest, and
disbursements for refundable tax credits such as the Earned Income Tax Credit (EITC) and the Additional
Child Tax Credit (ACTC).
Unpaid Assessments
Under federal accounting standards, federal taxes receivable are unpaid assessments in which the
taxpayer or court has agreed to the amount. Unpaid assessments not agreed to by taxpayers or the
courts are categorized as compliance assessments; and assessments that have no future collection
potential are categorized as write offs. Compliance assessments and write offs are not included on the
balance sheet as federal taxes receivable.
Unpaid Assessments
As of September 30, 2021 and September 30, 2020 (in Billions)
$
Federal taxes receivable
$
2020
427
80
Compliance (Amounts not agreed to by taxpayer or courts)
Write offs (No future collection potential)
Total Unpaid Assessments
2021
493
$
85
658
74
$
95
596
The increase in total unpaid assessments is $62 billion when compared to September 30, 2020. The
increase in total unpaid assessments is primarily due to an increase in Social Security Tax Deferral
amounts (refer to the Other Information section of this report for additional information).
30
IRS FY 2021 | Financial Report
Management's Discussion and Analysis
The total unpaid assessment balance consists of delinquent and non-delinquent balances. These balances
are owed by taxpayers who file returns without sufficient payment and/or assessed amounts through
the IRS’s enforcement programs (refer to financial statements Note 1.E. and Note 5 or further details).
Delinquent balances are past due while non-delinquent balances are due at a future point in time and
include IRC Section 965(h) amounts and CARES Act related Social Security Tax Deferral balances.
Federal Taxes Receivable, Gross – Delinquency Status
As of September 30, 2021 and September 30, 2020 (in Billions)
Nondelinquent 965h Unpaid Assessments
Nondelinquent Social Security Tax Deferral Unpaid Assessments
Delinquent Unpaid Assessments
Delinquent Restitution Based Unpaid Assessments
Federal Taxes Receivable, Gross
$
$
2021
158
106
227
2
493
$
$
2020
178
23
224
2
427
Collectability Modeling and Economic Conditions
The economic uncertainty of FY 2021 and FY 2020 related to COVID-19 resulted in new legislation and
changes to collectability. Social Security Tax Deferrals increased over $83 billion during FY 2021. IRS
treated these deferrals as collectable unless there was specific evidence otherwise, as these amounts
are not due until FY 2022 and FY 2023. Indicators of financial health were manually reviewed for publicly
traded businesses with large dollar IRC Section 965 amounts due. The analysis determined that large
dollar IRC Section 965(h) taxpayers are primarily in a favorable long-term economic position to make the
future payments. For delinquent unpaid assessments, collectability reflects existing economic conditions
of the taxpayers’ ability to pay.
The total Federal taxes receivable, net, excludes the estimated uncollectable amount of $191 billion,
as of September 30, 2021 and $191 billion as of September 30, 2020. Examples of uncollectible taxes
include taxpayers who agree they owe the tax but are unlikely to pay and businesses with extreme
financial hardships. Overall collectability combines separate collectability calculations for delinquent
taxes receivable, IRC Section 965(h) amounts, Social Security Tax Deferrals, and restitution-based
assessments.
Federal Taxes Receivable As of September 30, 2021 (in Billions)
Collectability
Gross
Nondelinquent 965h Unpaid Assessments
90.6%
$
158
Nondelinquent Social Security Tax Deferral Unpaid Assessments
99.9%
106
Delinquent Unpaid Assessments
23.0%
229
Federal Taxes Receivable, Gross
$
493
Federal Taxes Receivable As of September 30, 2020 (in Billions)
Collectability
Gross
Nondelinquent 965h Unpaid Assessments
94.3%
$
178
Nondelinquent Social Security Tax Deferral Unpaid Assessments
99.6%
23
Delinquent Unpaid Assessments
20.0%
226
Federal Taxes Receivable, Gross
$
427
31
Net
$
$
143
106
53
302
Net
$
$
168
23
45
236
IRS FY 2021 | Financial Report
FINANCIAL
INFORMATION
This page was intentionally left blank
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
I am pleased to present the IRS Financial Report for
FY 2021.
This is the first Financial Report to be published on IRS.gov. This report
demonstrates the dedication, accountability, and professionalism of the
IRS financial management community and provides the American people
with a comprehensive view of the IRS’s financial activities. I am proud of
our continued success in demonstrating stewardship overseeing more
than $4.1 trillion in tax revenue, $1.1 trillion in federal tax refunds and other
outlays and $658 billion in unpaid assessments, as well as the resources
that support the mission of the IRS.
In FY 2021, Congress and both administrations entrusted the IRS with $2.4 billion in supplemental
funding to support our nation’s recovery from the COVID-19 pandemic. We overcame significant barriers
to implement legislative requirements resulting in the expedient roll out of Economic Impact Payments,
Consolidated Omnibus Budget Reconciliation Act, Premium Tax Credit changes and the Advanced Child
Tax Credits.
The IRS continued our tradition of fiscal integrity and commitment to ensuring strong financial
management as we received our 22nd consecutive unmodified opinion on our financial statements in
FY 2021. We continue to be diligent in our efforts to resolve two significant deficiencies affecting internal
controls over unpaid assessments and financial reporting systems.
Looking ahead in FY 2022, I am focused on providing even more accountability and management of our
resources with innovation and dedication. We will continue to work with Treasury, OMB and Congress to
address funding shortages to enhance the IRS’s ability to modernize IT systems and capture additional
information reporting on financial transactions to transform the service delivery we provide to taxpayers.
I am proud of the hard work and dedication of the entire financial management community as we
strive for excellence in reporting and continue to ensure taxpayer dollars are managed with integrity
and accuracy. We will continue to work together to better manage resources, provide timely, reliable
financial information to support critical decision making, and promote resilient, agile, and sound financial
management operations while embracing innovative practices.
Sincerely,
Teresa R. Hunter
Chief Financial Officer
34
Financial Information
INDEPENDENT AUDITOR'S REPORT
441 G St. N.W.
Washington, DC 20548
Independent Auditor’s Report
To the Commissioner of Internal Revenue
In our audits of the fiscal years 2021 and 2020 financial statements of the Internal Revenue
Service (IRS), we found
•
IRS’s financial statements as of and for the fiscal years ended September 30, 2021, and
2020, are presented fairly, in all material respects, in accordance with U.S. generally
accepted accounting principles;
•
although internal controls could be improved, IRS maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2021; and
•
no reportable noncompliance for fiscal year 2021 with provisions of applicable laws,
regulations, contracts, and grant agreements we tested.
The following sections discuss in more detail (1) our report on the financial statements and on
internal control over financial reporting, which includes required supplementary information
(RSI) 1 and other information included with the financial statements; 2 (2) our report on
compliance with laws, regulations, contracts, and grant agreements; and (3) agency comments.
Report on the Financial Statements and on Internal Control over Financial Reporting
In accordance with the authority conferred by the Chief Financial Officers Act of 1990 (CFO
Act), as amended by the Government Management Reform Act of 1994, we have audited IRS’s
financial statements because of the significance of IRS’s tax collections to the consolidated
financial statements of the U.S. government, which GAO is required to audit. 3 IRS’s financial
statements comprise the balance sheets as of September 30, 2021, and 2020; the related
statements of net cost, changes in net position, budgetary resources, and custodial activity for
the fiscal years then ended; and the related notes to the financial statements. We also have
audited IRS’s internal control over financial reporting as of September 30, 2021, based on
1The RSI consists of Management’s Discussion and Analysis and the Required Supplementary Information section,
which are included with the financial statements.
2Other information consists of information included with the financial statements, other than the RSI and the auditor’s
report.
331 U.S.C. § 331(e)(2). See the Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15,
1990), codified, in relevant part, as amended, at 31 U.S.C. § 3521(g); see also the Government Management Reform
Act of 1994, Pub. L. No. 103-356, 108 Stat. 3410 (Oct. 13, 1994), codified, in relevant part, as amended, at 31 U.S.C.
§ 3515(c). Pursuant to the authority of 31 U.S.C. § 3515, the Office of Management and Budget requires IRS to issue
annual audited financial statements that are separate from those of the Department of the Treasury (Treasury) or that
are presented separately in the department’s audited, consolidated financial statements.
35
IRS FY 2021 | Financial Report
Financial Information
criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal Managers’
Financial Integrity Act (FMFIA).
We conducted our audits in accordance with U.S. generally accepted government auditing
standards. We believe that the audit evidence we obtained is sufficient and appropriate to
provide a basis for our audit opinions.
Management’s Responsibility
IRS management is responsible for (1) the preparation and fair presentation of these financial
statements in accordance with U.S. generally accepted accounting principles; (2) preparing,
measuring, and presenting the RSI in accordance with U.S. generally accepted accounting
principles; (3) preparing and presenting other information included in documents containing the
audited financial statements and auditor’s report, and ensuring the consistency of that
information with the audited financial statements and the RSI; (4) maintaining effective internal
control over financial reporting, including the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error; (5) evaluating the effectiveness
of internal control over financial reporting based on the criteria established under FMFIA; and
(6) its assessment about the effectiveness of internal control over financial reporting as of
September 30, 2021, included in the accompanying Management’s Report on Internal Control
over Financial Reporting on page 24.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements and an opinion on
IRS’s internal control over financial reporting based on our audits. U.S. generally accepted
government auditing standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free from material misstatement, and
whether effective internal control over financial reporting was maintained in all material respects.
We are also responsible for applying certain limited procedures to RSI and other information
included with the financial statements.
An audit of financial statements involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures selected depend on
the auditor’s judgment, including the auditor’s assessment of the risks of material misstatement
of the financial statements, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit of financial statements also involves evaluating the appropriateness of
the accounting policies used and the reasonableness of significant accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements.
An audit of internal control over financial reporting involves performing procedures to obtain
evidence about whether a material weakness exists. 4 The procedures selected depend on the
4A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be
prevented, or detected and corrected, on a timely basis. A deficiency in internal control exists when the design or
operation of a control does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, misstatements on a timely basis.
36
IRS FY 2021 | Financial Report
Financial Information
auditor’s judgment, including the assessment of the risk that a material weakness exists. An
audit of internal control over financial reporting also includes obtaining an understanding of
internal control over financial reporting, and evaluating and testing the design and operating
effectiveness of internal control over financial reporting based on the assessed risk. Our audit of
internal control also considered IRS’s process for evaluating and reporting on internal control
over financial reporting based on criteria established under FMFIA. Our audits also included
performing such other procedures as we considered necessary in the circumstances.
We did not evaluate all internal controls relevant to operating objectives as broadly established
under FMFIA, such as those controls relevant to preparing performance information and
ensuring efficient operations. We limited our internal control testing to testing controls over
financial reporting. Our internal control testing was for the purpose of expressing an opinion on
whether effective internal control over financial reporting was maintained, in all material
respects. Consequently, our audit may not identify all deficiencies in internal control over
financial reporting that are less severe than a material weakness.
Definition and Inherent Limitations of Internal Control over Financial Reporting
An entity’s internal control over financial reporting is a process effected by those charged with
governance, management, and other personnel, the objectives of which are to provide
reasonable assurance that (1) transactions are properly recorded, processed, and summarized
to permit the preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and assets are safeguarded against loss from unauthorized acquisition,
use, or disposition, and (2) transactions are executed in accordance with provisions of
applicable laws, including those governing the use of budget authority, regulations, contracts,
and grant agreements, noncompliance with which could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or
detect and correct, misstatements due to fraud or error. We also caution that projecting any
evaluation of effectiveness to future periods is subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Opinion on Financial Statements
In our opinion, IRS’s financial statements present fairly, in all material respects, IRS’s financial
position as of September 30, 2021, and 2020, and its net cost of operations, changes in net
position, budgetary resources, and custodial activity for the fiscal years then ended in
accordance with U.S. generally accepted accounting principles.
In accordance with federal accounting standards, IRS’s financial statements do not include an
estimate of the dollar amount of taxes that are owed to the federal government but that
taxpayers have not reported or that IRS has not identified through its enforcement programs,
37
IRS FY 2021 | Financial Report
Financial Information
often referred to as the tax gap, 5 nor do they include information on tax expenditures. 6 Further
detail on the tax gap and tax expenditures, as well as the associated dollar amounts, is provided
in the other information included with the financial statements.
Opinion on Internal Control over Financial Reporting
In our opinion, although certain internal controls could be improved, IRS maintained, in all
material respects, effective internal control over financial reporting as of September 30, 2021,
based on criteria established under FMFIA.
Our fiscal year 2021 audit continued to identify significant deficiencies in internal control over
financial reporting concerning IRS’s unpaid assessments and financial reporting systems. 7 We
considered these significant deficiencies in determining the nature, timing, and extent of our
audit procedures on IRS’s fiscal year 2021 financial statements.
Although the significant deficiencies in internal control did not affect our opinion on IRS’s fiscal
year 2021 financial statements, misstatements may occur in unaudited financial information
reported internally and externally by IRS because of these significant deficiencies.
In addition, because of the significant deficiencies in internal controls over unpaid assessments
and financial reporting systems that existed during fiscal year 2021, IRS’s financial management
systems did not comply substantially with federal financial management systems requirements
as required by the Federal Financial Management Improvement Act of 1996. 8
We will be reporting additional details concerning the significant deficiency in internal control
over financial reporting systems separately to IRS management, along with recommendations
5The tax gap arises when taxpayers, whether intentionally or inadvertently, fail to (1) accurately report tax liabilities on
tax returns (underreporting), (2) pay taxes due from filed returns (underpayment), or (3) file required tax returns
altogether or on time (nonfiling). Based on its most recent study, which relied on 2011–2013 data, IRS estimated the
average annual tax gap to be about $441 billion.
6Tax expenditures are provisions of the Internal Revenue Code (Title 26, U.S. Code) that reduce taxpayers’ tax
liability and therefore the amount of tax revenue paid to the government. Examples include tax credits, deductions,
exclusions, exemptions, deferrals, and preferential tax rates.
7An unpaid assessment is an enforceable claim against a taxpayer for which specific amounts are due, have been
determined, and the person(s) or entities from which a tax is due have been identified. See implementing guidance in
Internal Revenue Manual § 1.34.4.1.6 (1) p, Terms/Definitions (Aug. 25, 2015). A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance.
8Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA), which is reprinted in 31
U.S.C. § 3512 note, requires that CFO Act agencies implement and maintain financial management systems that
comply substantially with federal financial management systems requirements, applicable federal accounting
standards, and the U.S. Government Standard General Ledger at the transaction level. IRS’s financial management
systems did not comply substantially with federal financial management systems requirements because of the
financial management system–related internal control deficiencies discussed in this report. However, IRS’s financial
management systems did comply substantially with federal accounting standards and the U.S. Government Standard
General Ledger at the transaction level. FFMIA applies directly to Treasury, which is a CFO Act agency. As a
Treasury component, IRS is not required to be assessed separately; however, it is included in Treasury’s agencywide FFMIA assessment. Since IRS is a significant component of Treasury, we conducted this assessment to support
the audit of the Treasury agency-wide financial statements. See app. D of Office of Management and Budget,
Compliance with the Federal Financial Management Improvement Act of 1996, OMB Circular No. A-123, § 4.A (Sept.
20, 2013).
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IRS FY 2021 | Financial Report
Financial Information
for corrective actions. In addition to the significant deficiencies in internal control over unpaid
assessments and financial reporting systems, we also identified other deficiencies in IRS’s
internal control over financial reporting that we do not consider to be material weaknesses or
significant deficiencies. Nonetheless, these deficiencies warrant IRS management’s attention.
We have communicated these matters to IRS management and, where appropriate, will report
on them separately along with related recommendations for corrective actions.
Significant Deficiency in Internal Control over Unpaid Assessments
During fiscal year 2021, the systems IRS uses to account for federal taxes receivable and other
unpaid assessment balances continued to have limitations, as well as other control deficiencies
that led to errors in taxpayer accounts. Because of these deficiencies, IRS’s systems were
unable to provide the timely, reliable, and complete transaction-level financial information
necessary to enable IRS to appropriately classify and report unpaid assessment balances. 9
As in prior years, 10 IRS used a manually driven statistical estimation process to compensate for
the effects of its system limitations and other deficiencies on a material portion of its federal
taxes receivable balance to help ensure that this balance was free of material misstatement. 11
During fiscal year 2021, IRS recorded adjustments totaling about $18 billion to correct the
effects of continued errors in its underlying data that it identified during its estimation process.
While using this process to determine a material portion of taxes receivable has enabled IRS to
produce reliable related balances for year-end reporting, it does not provide IRS management
with readily available, reliable unpaid assessment information on a daily basis throughout the
year for effectively managing unpaid assessment balances. Further, errors in taxpayer accounts
create a burden for those taxpayers whose accounts were affected.
While not collectively considered a material weakness, IRS’s ongoing control deficiencies
related to unpaid assessments are important enough to merit attention by those charged with
governance of IRS. Therefore, these issues collectively represent a significant deficiency in
IRS’s internal control over financial reporting as of September 30, 2021. Continued
management commitment and sustained efforts are necessary to build on the progress made to
9Federal accounting standards classify unpaid assessments into one of the following three categories for reporting
purposes: federal taxes receivable, compliance assessments, and write-offs. Federal taxes receivable are taxes due
from taxpayers for which IRS can support through the existence of a taxpayer agreement such as filing of a tax return
without sufficient payment, or a court ruling in favor of IRS. Compliance assessments are proposed tax assessments
where neither the taxpayer (when the right to disagree or object exists) nor a court has affirmed that the amounts are
owed. Write-offs represent unpaid assessments for which IRS does not expect further collections because of factors
such as the taxpayer’s death, bankruptcy, or insolvency. Federal accounting standards require only federal taxes
receivable, net of an allowance for uncollectible taxes receivable, to be reported on the financial statements. See
Statement of Federal Financial Accounting Standards No. 7, Accounting for Revenue and Other Financing Sources
and Concepts for Reconciling Budgetary and Financial Accounting (May 10, 1996). See also implementing guidance
in Internal Revenue Manual, § 1.34.4, Unpaid Assessments (March 3, 2021).
10See GAO, Financial Audit: IRS's FY 2020 and FY 2019 Financial Statements, GAO-21-162 (Washington, D.C.:
Nov. 10, 2020).
11In fiscal year 2021, IRS’s reported federal taxes receivable consisted of a combination of three distinct types of
taxes receivable with different internal control and accounting processes in place: amounts derived from (1) IRS’s
unpaid assessments estimation process; (2) the Section 965(h) repatriation of foreign earnings provision of the Tax
Cuts and Jobs Act of 2017, Pub. L. No. 115-97, § 14103, 131 Stat. 2054, 2195 (Dec. 22, 2017), which is codified at
26 U.S.C § 965; and (3) taxpayer deferral of the employer's share of Social Security taxes and certain selfemployment taxes permitted by the CARES Act, Pub. L. No. 116-136, div. A, tit. II, § 2302, 134 Stat. 281, 351-52
(Mar. 27, 2020), which is reprinted in 26 U.S.C. § 3111 note.
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IRS FY 2021 | Financial Report
Financial Information
date and to fully address IRS’s remaining unresolved issues concerning the management and
reporting of unpaid assessments.
Significant Deficiency in Internal Control over Financial Reporting Systems
During our fiscal year 2021 audit, we determined that unresolved information system security
control deficiencies from prior audits, along with new information system control deficiencies,
collectively represent a significant deficiency in IRS’s internal control over financial reporting.
These control deficiencies relate to business process application controls 12 and general
controls. 13
IRS mitigated the potential effect of continuing and newly identified control deficiencies primarily
through compensating controls that management has designed to detect potential
misstatements on the financial statements. Nevertheless, these business process application
and general control deficiencies increase the risk of unauthorized access to, modification of, or
disclosure of sensitive financial and taxpayer data and disruption of critical operations and are
therefore important enough to merit the attention of those charged with governance of IRS.
While this significant deficiency in internal control over financial reporting continued to exist as
of September 30, 2021, IRS made progress in addressing certain information system security
control deficiencies. For example, IRS addressed deficiencies in (1) security management, (2)
patch management, and (3) boundary protection. 14 However, unresolved and newly identified
control deficiencies continue to exist. For example, deficiencies exist in the business process
application and general controls concerning (1) improper configuration of security settings, (2)
inadequate implementation of access controls, and (3) inadequate enforcement of encryption
mechanisms to protect systems and data. Continued and consistent management commitment
and attention are essential to addressing existing system deficiencies and continually improving
IRS’s information system security controls.
12Business process application controls (input, processing, output, interface, and data management system controls)
help to provide reasonable assurance about the completeness, accuracy, validity, confidentiality, and availability of
transactions and data during application processing.
13General controls help to provide reasonable assurance that access to data is appropriately restricted, physical
access to sensitive computing resources and facilities is restricted, systems are securely configured to avoid
exposure to known vulnerabilities, and incompatible duties are segregated among individuals. In addition, controls
should ensure that backup and recovery plans are adequate and tested to ensure the continuity of essential
operations and that security is managed entity-wide under a framework that provides a continuing cycle of activity for
assessing risk, developing and implementing effective security procedures, and monitoring the effectiveness of these
procedures.
14Security management establishes a framework and continuous cycle of activity for assessing risk, developing and
implementing effective security procedures, and monitoring the effectiveness of these procedures. Patch
management is an important element in mitigating the risks associated with known vulnerabilities. A patch, which is a
piece of software code, is inserted into a program to address a vulnerability. Software vendors develop and release
patches when vulnerabilities are discovered. Boundary protection controls the logical connectivity into and out of
networks and controls connectivity to and from devices attached to the network.
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IRS FY 2021 | Financial Report
Financial Information
Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles issued by the Federal Accounting Standards
Advisory Board (FASAB) require that the RSI be presented to supplement the financial
statements. Although the RSI is not a part of the financial statements, FASAB considers this
information to be an essential part of financial reporting for placing the financial statements in
appropriate operational, economic, or historical context. We have applied certain limited
procedures to the RSI in accordance with U.S. generally accepted government auditing
standards, which consisted of inquiries of management about the methods of preparing the RSI
and comparing the information for consistency with management’s responses to the auditor’s
inquiries, the financial statements, and other knowledge we obtained during the audit of the
financial statements, in order to report omissions or material departures from FASAB guidelines,
if any, identified by these limited procedures. We did not audit and we do not express an opinion
or provide any assurance on the RSI because the limited procedures we applied do not provide
sufficient evidence to express an opinion or provide any assurance.
Other Information
IRS’s other information contains a wide range of information, some of which is not directly
related to the financial statements. This information is presented for purposes of additional
analysis and is not a required part of the financial statements or the RSI. We read the other
information included with the financial statements in order to identify material inconsistencies, if
any, with the audited financial statements. Our audit was conducted for the purpose of forming
an opinion on IRS’s financial statements. We did not audit and do not express an opinion or
provide any assurance on the other information.
Report on Compliance with Laws, Regulations, Contracts, and Grant Agreements
In connection with our audits of IRS’s financial statements, we tested compliance with selected
provisions of applicable laws, regulations, contracts, and grant agreements consistent with our
auditor’s responsibility discussed below. We caution that noncompliance may occur and not be
detected by these tests. We performed our tests of compliance in accordance with U.S.
generally accepted government auditing standards.
Management’s Responsibility
IRS management is responsible for complying with laws, regulations, contracts, and grant
agreements applicable to IRS.
Auditor’s Responsibility
Our responsibility is to test compliance with selected provisions of laws, regulations, contracts,
and grant agreements applicable to IRS that have a direct effect on the determination of
material amounts and disclosures in IRS’s financial statements, and perform certain other
limited procedures. Accordingly, we did not test compliance with all laws, regulations, contracts,
and grant agreements applicable to IRS.
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IRS FY 2021 | Financial Report
Financial Information
Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant Agreements
Our tests for compliance with selected provisions of applicable laws, regulations, contracts, and
grant agreements disclosed no instances of noncompliance for fiscal year 2021 that would be
reportable under U.S. generally accepted government auditing standards. However, the
objective of our tests was not to provide an opinion on compliance with laws, regulations,
contracts, and grant agreements applicable to IRS. Accordingly, we do not express such an
opinion.
Intended Purpose of Report on Compliance with Laws, Regulations, Contracts, and Grant
Agreements
The purpose of this report is solely to describe the scope of our testing of compliance with
selected provisions of applicable laws, regulations, contracts, and grant agreements and the
results of that testing, and not to provide an opinion on compliance. This report is an integral
part of an audit performed in accordance with U.S. generally accepted government auditing
standards in considering compliance. Accordingly, this report on compliance with laws,
regulations, contracts, and grant agreements is not suitable for any other purpose.
Agency Comments
In commenting on a draft of this report, IRS stated that it was pleased to receive an unmodified
opinion on its financial statements and commented on its progress toward resolving prior year
recommendations related to information systems. IRS also noted its intention to continue
working to improve its internal controls. The complete text of IRS’s response is reproduced in
the enclosure.
Dawn B. Simpson
Director
Financial Management and Assurance
November 8, 2021
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IRS FY 2021 | Financial Report
Financial Information
ENCLOSURE: IRS RESPONSE TO THE INDEPENDENT AUDITOR'S REPORT
November 4, 2021
Ms. Dawn B. Simpson
Director
Financial Management and Assurance
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548
Dear Ms. Simpson:
Thank you for the opportunity to comment on the draft report titled, Financial Audit: IRS's Fiscal Years
2021 and 2020 Financial Statements. We are pleased the IRS received an unmodified opinion on its
combined financial statements. The unmodified opinion demonstrates the IRS accurately accounts for
tax revenue receipts, tax refunds and IRS appropriated funds.
We appreciate the GAO recognizing our successful efforts to implement the Coronavirus Response and
Relief Supplemental Appropriations Act, 2021 and the American Rescue Plan Act of 2021. Those efforts
resulted in the IRS processing over $600 billion in economic impact payments and advanced child
tax credits, as well as accounting for over $100 billion in deferred payroll taxes in Fiscal Year 2021. By
prioritizing activities based on the greatest effect on the financial statements, we also made significant
progress toward resolving prior year recommendations related to information systems.
The IRS's ability to produce accurate and reliable financial statements each year is due to the efforts of
our outstanding management team and staff. We are dedicated to promoting the highest standard of
financial management, and we look forward to working with the GAO to continue providing high-quality
reporting and improving our internal controls.
Sincerely,
Charles P. Rettig
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IRS FY 2021 | Financial Report
Financial Information
PRINCIPAL FINANCIAL STATEMENTS
The principal financial statements have been prepared to report the financial position and results of
operations of the IRS, pursuant to the requirements of the Chief Financial Officers Act of 1990 (Public
Law 101-576), the Government Management Reform Act of 1994, and the OMB Circular No. A-136,
Financial Reporting Requirements. The responsibility for the integrity of the financial information
included in these statements is with the management of the IRS. The audit of the IRS principal financial
statements was performed by the GAO.
The IRS principal financial statements for FY 2021 and FY 2020 are:
. The Balance Sheet presents the assets, liabilities, and net position.
. The Statement of Net Cost presents the net cost of operations by program. It includes the gross
costs less any exchange revenue earned from activities.
. The Statement of Changes in Net Position (SCNP) presents the change in net position resulting
from the net cost of operations, budgetary financing sources other than exchange revenues, and
other financing sources.
. The Statement of Budgetary Resources presents the budgetary resources; the status of those
resources; and the agency outlays, net. Additional detail by major budget accounts is available in the
Required Supplementary Information section.
. The Statement of Custodial Activity presents the sources of non-exchange federal tax revenues
collected, and disposition of refunds and outlays disbursed.
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IRS FY 2021 | Financial Report
Financial Information
Balance Sheet
As of September 30, 2021 and 2020
(in Millions)
2021
ASSETS
Intragovernmental
Fund Balance with Treasury (Note 2)
Accounts Receivable, Net
Advances and Prepayments
Other Assets
Due From General Fund of the U.S. Government (Note 3)
Total Intragovernmental
With the Public
Cash and Other Monetary Assets (Note 3, 4)
Accounts Receivable, Net
Federal Taxes Receivable, Net (Notes 3, 5, 7)
Other Receivables, Net
General Property and Equipment, Net (Note 6)
Advances and Prepayments
Inventory and Related Property, Net
Total with the Public
Total Assets
LIABILITIES
Intragovernmental
Accounts Payable
Other Liabilities
Due To General Fund of the U.S. Government (Note 7)
Other Liabilities (Note 8)
Total Intragovernmental
With the Public
Accounts Payable
Federal Tax Refunds Payable
Other Payables
Federal Employee Benefits (Note 9)
Other Liabilities (Note 8)
Total with the Public
Total Liabilities
Commitments and Contingencies (Note 12)
Net Position
Unexpended Appropriations
Funds From Other Than Dedicated Collections
Cumulative Results of Operations
Funds From Dedicated Collections (Note 13)
Funds From Other Than Dedicated Collections
Total Cumulative Results of Operations
Total Net Position
Total Liabilities and Net Position
$
7,062
34
10
2020
$
5,069
43
-
6,248
13,354
3,750
8,862
1,459
787
$
302,000
9
1,822
9
1
305,300
318,654
$
236,000
5
1,871
10
238,673
247,535
$
6
$
6
$
304,058
194
304,258
237,612
185
237,803
6,248
3
1,058
2,122
9,431
313,689
3,750
13
1,068
1,351
6,182
243,985
3,459
2,005
206
1,300
1,506
4,965
318,654
126
1,419
1,545
3,550
247,535
$
The accompanying notes are an integral part of these statements.
45
IRS FY 2021 | Financial Report
Financial Information
Statement of Net Cost
For the Years Ended September 30, 2021 and 2020
(in Millions)
2021
PROGRAM COSTS
Taxpayer Assistance and Education
Gross Cost
Earned Revenue
Net Cost of Program
$
542
(1)
541
2020
$
507
(2)
505
Filing and Account Services
Gross Cost
Earned Revenue
Net Cost of Program
5,882
(146)
5,736
5,224
(161)
5,063
Compliance
Gross Cost
Earned Revenue
Net Cost of Program
8,914
(486)
8,428
8,187
(291)
7,896
132
132
135
135
Administration of Tax Credit Programs
Gross Cost
Earned Revenue
Net Cost of Program
$
Net Cost of Operations
14,837
$
13,599
The accompanying notes are an integral part of these statements.
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IRS FY 2021 | Financial Report
Financial Information
Statement of Changes in Net Position
For the Years Ended September 30, 2021
(in Millions)
Unexpended Appropriations
Beginning Balances
Appropriations Received
Other Adjustments
Appropriations Used
Net Change
Total Unexpended Appropriations, Ending Balances
Funds From
Dedicated
Collections
2021
Funds From
Other Than
Dedicated
Collections
$
$
Cumulative Results of Operations
Beginning Balances
Appropriations Used
Special Compliance Personnel Program
Transfers In/Out Without Reimbursement
Imputed Financing (Note 14)
Transfers To General Fund of the U.S. Government
Net Cost of Operations
Net Change
Total Cumulative Results of Operations, Ending
Balances
Net Position
$
-
2,005
14,290
(63)
(12,773)
1,454
3,459
Total
$
2,005
14,290
(63)
(12,773)
1,454
3,459
126
110
3
(33)
80
1,419
12,773
31
1,885
(4)
(14,804)
(119)
1,545
12,773
110
31
1,888
(4)
(14,837)
(39)
206
1,300
1,506
206
$
4,759
$
4,965
The accompanying notes are an integral part of these statements.
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IRS FY 2021 | Financial Report
Financial Information
Statement of Changes in Net Position
For the Years Ended September 30, 2020
(in Millions)
Unexpended Appropriations
Beginning Balances
Appropriations Received
Other Adjustments
Appropriations Used
Net Change
Total Unexpended Appropriations, Ending Balances
Funds From
Dedicated
Collections
2020
Funds From
Other Than
Dedicated
Collections
$
$
Cumulative Results of Operations
Beginning Balances
Appropriations Used
Non-exchange Revenues
Transfers In/Out Without Reimbursement
Imputed Financing (Note 14)
Transfers To General Fund of the U.S. Government
Net Cost of Operations
Net Change
Total Cumulative Results of Operations, Ending
Balances
Net Position
$
-
1,506
12,276
(47)
(11,730)
499
2,005
Total
$
1,506
12,276
(47)
(11,730)
499
2,005
69
153
(96)
57
1,686
11,730
6
1,504
(4)
(13,503)
(267)
1,755
11,730
153
6
1,504
(4)
(13,599)
(210)
126
1,419
1,545
126
$
3,424
$
3,550
The accompanying notes are an integral part of these statements
48
IRS FY 2021 | Financial Report
Financial Information
Statement of Budgetary Resources
For the Years Ended September 30, 2021 and 2020
(in Millions)
2021
Budgetary Resources
Unobligated Balance Brought Forward, October 1
Recoveries of Prior Year Unpaid Obligations
Other Changes in Unobligated Balance
Unobligated Balance From Prior Year Budget Authority, Net
Appropriations (Discretionary and Mandatory)
Spending Authority From Offsetting Collections (Discretionary and Mandatory)
Total Budgetary Resources
$
2020
1,396
165
19
1,580
14,900
151
$ 16,631
$
$
1,026
150
(7)
1,169
12,708
185
14,062
New Obligations and Upward Adjustments (Total)
$ 14,071
$
12,666
Unobligated Balance, End of Year
Apportioned, Unexpired Accounts
Exempt From Apportionment, Unexpired Accounts
Unapportioned, Unexpired Accounts
Unexpired Unobligated Balance, End of Year
Expired Unobligated Balance, End of Year
Unobligated Balance, End of Year (Total)
Total Budgetary Resources
2,296
7
3
2,306
254
2,560
$ 16,631
$
1,078
7
70
1,155
241
1,396
14,062
Outlays, Net
Outlays, Net (Total) (Discretionary and Mandatory)
Distributed Offsetting Receipts
Agency Outlays, Net (Discretionary and Mandatory)
$ 13,293
(370)
$ 12,923
Status of Budgetary Resources
$
$
12,172
(275)
11,897
The accompanying notes are an integral part of these statements.
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IRS FY 2021 | Financial Report
Financial Information
Statement of Custodial Activity
For the Years Ended September 30, 2021 and 2020
(in Billions)
2021
Revenue Activity
Collections of Federal Tax Revenue (Note 17)
Individual Income, FICA/SECA, and Other
Corporate Income
Excise
Estate and Gift
Railroad Retirement
Federal Unemployment
Total Collections of Federal Tax Revenue
Increase in Federal Taxes Receivable, Net
Total Federal Tax Revenue
$
Distribution of Federal Tax Revenue Due To General Fund of the U.S.
Government
Increase in Amount Due
Total Disposition of Federal Tax Revenue
Net Federal Revenue Activity
Federal Tax Refund and Outlay Activities
Total Refunds of Federal Taxes and Outlays (Note 18)
Appropriations Used For Refund of Federal Taxes and Outlays
Net Federal Tax Refund and Outlay Activities
2020
$
$
3,595
419
58
28
6
6
4,112
66
4,178
$
3,128
264
72
18
5
6
3,493
92
3,585
$
4,112
$
3,493
$
66
4,178
-
$
92
3,585
-
$
$
1,138
(1,138)
-
$
$
736
(736)
-
The accompanying notes are an integral part of these statements.
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IRS FY 2021 | Financial Report
Financial Information
NOTES TO THE FINANCIAL STATEMENTS
For the Years Ended September 30, 2021 and 2020
Note 1. Summary of Significant Accounting Policies
A. Reporting Entity
The IRS is a bureau of the Department of the Treasury. The IRS originated in 1862, when Congress
established the Office of the Commissioner of the Internal Revenue. The IRS administers the nation’s
tax laws and annually collects approximately 95% of the revenues funding the federal government. The
organizational divisions and programs within the IRS contribute to this achievement.
B. Basis of Accounting and Presentation
The financial statements have been prepared from the accounting records of the IRS in conformity
with U.S. GAAP and in accordance with OMB Circular No. A-136, Financial Reporting Requirements.
Accounting principles for federal entities are the standards prescribed by the Federal Accounting
Standards Advisory Board, which is the official body for setting accounting standards of the federal
government.
These comparative financial statements and related notes consist of the Balance Sheet, SNC, SCNP,
SBR, and SCA.
The accounting structure of federal agencies is designed to reflect both accrual and budgetary
accounting transactions. Under the accrual method of accounting, revenues are recognized when
earned and expenses are recognized when incurred, without regard to receipt or payment of cash.
Budgetary accounting facilitates compliance with legal constraints and controls over the use of federal
funds. The SCA is presented on the modified cash basis of accounting. Under this method, cash
collections and transfers to the General Fund of the U.S. Government are reported on a cash basis. The
collections and transfers are adjusted on the face of the SCA for the net change in taxes receivable,
producing modified cash basis balances.
Certain assets, liabilities, earned revenues, and costs have been classified as intragovernmental in
the financial statements and notes. Intragovernmental is defined as transactions made between two
reporting entities within the federal government.
C. Fund Balance with Treasury
The FBWT is an asset of a reporting entity and a liability of the General Fund of the U.S. Government.
The amounts represent commitments by the federal government to provide resources for certain
programs; but do not represent net assets to the federal government as a whole.
When the IRS seeks to use the FBWT to liquidate budgetary obligations, Treasury will finance the
disbursements in the same way it finances all other disbursements, using some combination of receipts,
other inflows and borrowing from the public (if there is a budget deficit).
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IRS FY 2021 | Financial Report
Financial Information
D. Accounts Receivable, net
Accounts receivable, net, are due to the IRS from the public and from federal agencies. The reimbursable
receivables are recorded, and revenues are recognized as services are performed and costs are incurred.
The allowance for uncollectible accounts is based on an annual review of groups of accounts by age for
accounts receivable balances older than one year. Intragovernmental receivables include an expenditure
transfer receivable from the Treasury Forfeiture Fund for the repayment of costs incurred in criminal
investigations related to seizure and forfeitures.
E. Federal Taxes Receivable, net
The IRS reduces its taxes receivable amount by an allowance to report the amount of Federal taxes
receivable, net, on its Balance Sheet. The allowance reflects an estimate of the portion of total taxes
receivable deemed to be uncollectible.
Accruals are made to reflect penalties and interest on taxes receivable through the Balance Sheet date.
The majority of the Due to General Fund of the U.S. Government balance is the offsetting liability of
Federal taxes receivable, net.
Taxes receivable consist of unpaid assessments (taxes, associated penalties and interest) due from
taxpayers. The existence of a receivable is supported by a taxpayer agreement, such as filing of a tax
return without sufficient payment, or a court ruling in favor of the IRS. Restitution based assessments
are included in the taxes receivable balance. The IRC Section 965(h) requires U.S. shareholders to pay
a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those
earnings had been repatriated to the United States. IRC Section 965(h) allows taxpayers to elect to
pay their IRC Section 965(h) tax on an eight-year installment schedule. The CARES Act, Section 2302,
contains a provision which allows employers to defer payment, without penalty, of the entire amount of
the employer’s share of the Social Security portion of Federal Insurance Contributions Act (FICA). This
also includes the employer’s and employee representative’s share of the Railroad Retirement tax. The
deferred amount is due in two installments with 50% due by December 31, 2021 and the remaining
amount by December 31, 2022.
Other Unpaid Assessments
Compliance assessments are unpaid assessments which neither the taxpayer nor a court has affirmed is
owed to the federal government. This includes assessments resulting from an IRS audit or examination
in which the taxpayer does not agree with the results. Write-off assessments consist of unpaid
assessments for which the IRS does not expect further collections due to factors such as taxpayers’
bankruptcy, insolvency, or death. Compliance assessments and write-off assessments are not reported
on the Balance Sheet. Statutory provisions authorize the IRS to collect on unpaid assessments for a
specific statutory timeframe. To pursue collections and account for collection efforts, the IRS maintains
unpaid assessment accounts in the financial records until the statute for collection expires.
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Financial Information
Tax Assessments
Under IRC Section 6201, the Secretary of the Treasury is authorized and required to make inquiries,
determinations, and assessments of all taxes imposed and accrued under any internal revenue law,
which have not been duly paid, including interest, additions to the tax, and assessable penalties. The
Secretary has delegated this authority to the Commissioner of the IRS. Unpaid assessments result from
taxpayers filing returns without sufficient payments and from the enforcement programs of the IRS, such
as examination, under-reporter, substitute for return, and combined annual wage reporting.
Abatements
IRC Section 6404 authorizes the Commissioner of the IRS to abate certain paid or unpaid portions of
assessed taxes, interest, and penalties. Abatements occur for several reasons and are a standard part
of the tax administration process. Abatements may be allowed for qualifying corporations claiming net
operating losses that create a credit when carried back and applied against a prior year’s tax liability.
Additionally, abatements can correct previous assessments from enforcement programs, eliminate taxes
discharged in bankruptcy, reduce or eliminate taxes encompassed in offers-in-compromise, eliminate
penalty assessments for reasonable cause, eliminate contested assessments caused by mathematical
or clerical errors, and eliminate assessments contested after the liability has been satisfied. Abatements
may result in claims for refunds or reductions of the unpaid assessed amounts.
F. Cash and Other Monetary Assets
Imprest funds are maintained by headquarters and field offices in commercial bank accounts. Other
monetary assets consist primarily of offers-in-compromise, voluntary deposits received from taxpayers
pending application of the funds to unpaid tax assessments, and seized monies pending the results of
criminal investigations.
G. General Property and Equipment
General property and equipment are recorded at historical cost. They consist of tangible and intangible
assets, including software. The IRS depreciates property and equipment on a straight-line basis over
its estimated useful life. Depreciation is recorded using the half year convention in the first year and
the final year for all property and equipment except for leases meeting the 75% useful life and/or 90%
of net present value criteria. The IRS depreciates these leases over the life of the leases. Disposals are
recorded annually.
In FY 2021, the IRS changed its capitalization policy to expense acquisitions of Laptop/Desktop,
Furniture, and End User Software regardless of the amount. Prior to FY 2021, these categories were
capitalized if they met the capitalization threshold of $50 thousand.
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IRS Capitalization Policy
Asset Class
Capitalization Threshold
IT equipment (Mainframe, Server & Telecommunication)
Bulk cost of $50 thousand or greater.
Non-IT equipment
Assets with bulk cost of $50 thousand or greater and
the individual cost is $5 thousand or greater.
Investigative equipment
Bulk cost of $50 thousand or greater.
Vehicles
No threshold.
Internal use software (IUS)
Projects with an estimated cost of greater than or equal
to $10 million per year or greater than or equal to $50
million over the life cycle.
Leasehold improvements (LHI)
Improvements with bulk cost of $50 thousand or
greater.
Assets under capital lease
Assets with bulk cost of $50 thousand or greater.
H. Advances and prepayments
Intragovernmental advances and prepayments include postage purchased from the United States Postal
Service (USPS) for postage meters, business reply mail, bulk mailing permits, stamps and postage paid
envelopes. The USPS requires payment for the postage in advance. Advances and prepayments to the
public represent cash outlays for criminal investigations and employee travel.
I. Inventory and Related Property
Forfeited property held for sale is acquired as a result of forfeiture proceedings or foreclosure sales
to satisfy a tax liability. The Federal Tax Lien Revolving Fund, established in accordance with Title 26
U.S.C., Section 7810, is used to redeem real property foreclosed upon by a holder of a lien. The IRS may
sell the property, reimburse the revolving fund in an amount equal to the redemption, and apply any net
proceeds to the outstanding tax obligation.
J. Due to General Fund of the U.S. Government
Due to General Fund of the U.S. Government is comprised of two sources, Federal taxes receivable, net,
and State Innovation Waiver Program (SIWP). The portion of the liability for Federal taxes receivable is
to be distributed to the General Fund of the U.S. Government upon collection. The portion of the liability
for the SIWP are awards by the Centers for Medicare and Medicaid Services (CMS), under Section 1332
of the Patient Protection & Affordable Care Act of 2010 (PPACA), where the grantees participating in the
program have not drawn down the funds per the term of the grant. The program is also referred to as a
State Relief and Empowerment Waiver.
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K. Federal Tax Refunds Payable and Due from General Fund of the U.S. Government
Federal tax refunds payable is comprised of measurable and legally payable amounts due to taxpayers
under established refund processes of the IRS. It is a fully funded liability offset by a corresponding
asset, Due from General Fund of the U.S. Government. The IRS records an amount Due from General
Fund of the U.S. Government to designate approved funding to pay year-end tax refund liabilities to
taxpayers.
L. Financing Sources and Revenues
Appropriations Received
The IRS receives most of its funding through annual, multi-year, and no-year appropriations available
for use within statutory limits for operating and capital expenditures. Appropriations are presented as a
budgetary financing source on the SCNP.
Exchange Revenue
Exchange revenue is recognized when earned and is derived from transactions where both the
government and the other party receive value. The IRS exchange revenue represents reimbursements,
user fees and collections of outstanding inactive tax receivables. Reimbursements are recognized as
the result of costs incurred for services performed for federal agencies or the public under reimbursable
agreements. User fees are from transactions with the public and are generally recognized when earned.
The Private Collection Agencies program has the authority to procure qualified tax collection contracts
for private collection contractors to perform the collection of outstanding inactive tax receivables from
the public. A portion of the collections are retained for cost of services performed through the contracts.
Non-exchange Revenue
Non-exchange revenue results from the government’s power to demand payments from the public.
The Special Compliance Personnel Program has a specifically, identifiable, legally enforceable claim to
a portion of the collections from outstanding inactive tax receivables to fund the administration of the
program.
Imputed Financing Source
The IRS receives goods and services from other federal entities at no cost or at less than the full cost to
the providing entity. When costs are identifiable to the IRS, these amounts are recognized as imputed
costs in the SNC and as an imputed financing source on the SCNP. Imputed financing sources include
Fiscal Service costs of processing tax payments and collections, employee benefits administered by
OPM and claims to be settled by the Treasury Judgement Fund.
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IRS FY 2021 | Financial Report
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M. Program Costs
Taxpayer Assistance and Education provides services to assist taxpayers with tax return preparation.
Primary activities include tax law interpretations, developing and disseminating tax forms and
publications, researching customer needs and establishing partnerships with stakeholder groups,
and taxpayer advocacy. In addition, these programs continue to emphasize taxpayer education,
outreach, and enhancing pre-filing taxpayer support through electronic media. Earned revenues include
reimbursable revenues for services provided.
Filing and Account Services provides resources and support services to taxpayers with filing returns
or paying taxes, and for the issuance of refunds and maintenance of taxpayer accounts. Program
activities include assistance, education, and compliance services to taxpayers through telephone,
correspondence, and electronic means to resolve account and notice inquiries. Earned revenues include
reimbursable revenues for services provided and user fees for several services performed including
photocopies, U.S. residency certifications, and Income Verification Express Service disclosures.
Compliance administers compliance activities after a return is filed to identify and correct possible
errors or underpayments. This program includes examination and collection programs, which ensure
proper payment and tax reporting; criminal investigation programs to uncover violations of internal
revenue tax laws and other financial crimes; the development and printing of published IRS guidance
materials; and support of taxpayers for pre-filing agreements, determination letters, and advance pricing
agreements. It also includes specialty program examinations, international collections, and international
examinations. Earned revenues are primarily from user fees for installment agreements, letter rulings
and determinations, offers in compromise, enrolled agent and actuary programs, return preparer
registrations, advance pricing agreements, and for services provided from reimbursable revenues and
the Private Collection Agencies program.
Administration of Tax Credit Programs primarily administers the EITC program, which works closely
with internal and external stakeholders through expanded customer service and public outreach,
enforcement, and research efforts to increase the number of eligible taxpayers who claim the EITC and
to reduce the number of EITC claims paid in error. EITC payments refunded to individuals or credited
against tax liabilities are not included in program costs.
N. Custodial Activity
Revenues
The IRS collects custodial non-exchange revenues for taxes levied against taxpayers for: individual
and corporate income, FICA, SECA, excise, estate, gift, railroad retirement, and federal unemployment
taxes. These collections are not available to the IRS for obligation or expenditure and are recognized
as custodial revenues when collected. The sources of federal tax revenue and their distribution to the
General Fund of the U.S. Government are reported on the SCA.
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Financial Information
Appropriations
The IRS was granted permanent and indefinite budgetary authority through legislation to disburse tax
refund principal and related interest as they become due. The permanent and indefinite appropriations
are not subject to budgetary ceilings set by Congress during the annual appropriation process.
Refunds due to taxpayers are reported as Federal tax refunds payable on the Balance Sheet. The IRS
records an offsetting asset, Due from General Fund of the U.S. Government, to reflect the year-end
budget authority to pay this liability.
Disbursements for tax refunds, refundable tax credits and other outlays, reported on the SCA, are offset
by appropriations used for refunds. Disbursements for refunds are not a cost to the IRS, but rather a
cost to the federal government as a whole.
O. Funds from Dedicated Collections
Funds from Dedicated Collections are specifically identified revenues, often supplemented by other
financing sources, which remain available over time. These specifically identified revenues and other
financing sources are required by statute to be used for designated activities, benefits or purposes, and
must be accounted for separately from the federal government’s general revenues.
P. Allocation Transfers
The IRS is a party to allocation transfers with other federal agencies as both a transferring (parent)
entity and a receiving (child) entity. Allocation transfers are legal delegations by one federal entity of
its authority to obligate budget authority and outlay funds to another federal entity. A separate fund
account (allocation account) is created in Treasury as a subset of the parent fund account for tracking
and reporting purposes. All allocation transfers of balances are credited to this account, and subsequent
obligations and outlays incurred by the child entity are charged to this allocation account as they execute
the delegated activity on behalf of the parent entity. Financial activity related to these allocation transfers
is reported in the financial statements of the parent entity, from which the underlying legislative authority,
appropriations, and budget apportionments are derived. The IRS allocates funds, as the parent entity, to
the Department of Health and Human Services (HHS). Also, the IRS receives allocation transfers, as the
child entity, from the Department of Transportation’s Federal Highway Administration and HHS.
Q. Fiduciary Activities
Fiduciary activities are the collection or receipt, and the management, protection, accounting,
investment, and disposition by the federal government of cash or other assets in which non-federal
individuals or entities have an ownership interest the federal government must uphold.
The IRS fiduciary activities include the net collections for a taxable year from U.S. military and federal
employees working in the U.S. territories of the Northern Mariana Islands, the U.S. Virgin Islands, Guam,
and American Samoa. These fiduciary assets are not assets of the IRS.
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R. Employee Compensation and Benefits
Accrued Annual, Sick, and Other Leave
Annual and compensatory leave is accrued and expensed as earned and used. Each year, the IRS
adjusts the balance in the accrued annual leave liability account to reflect current pay rates. To the extent
current or prior year appropriations are not available to fund annual and compensatory leave earned but
not taken, funding is obtained from future financing sources. Sick leave and other types of non-vested
leave are expensed as used.
Federal Employees’ Compensation Act
The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection and
other death benefits to beneficiaries for federal civilian employees with proper coverage who are injured
on the job, have incurred work-related occupational diseases, and whose deaths were attributed to
job-related injuries or occupational diseases. The FECA program is administered by the Department of
Labor (DOL), which pays valid claims and subsequently seeks reimbursement for claims paid. Accrued
FECA liability represents amounts due to the DOL for claims paid on behalf of the IRS. Actuarial FECA
liability represents the liability for future workers’ compensation benefits, which includes the expected
liability for death, disability, medical, and miscellaneous costs for approved cases. The DOL estimates
the liability for future payments as a result of past events.
Employee Health and Life Insurance Benefits
Employees are eligible to participate in the Federal Employees Health Benefit Program (FEHB)
and Federal Employees’ Group Life Insurance Program (FEGLI). The FEHB offers a wide variety of
group plans and coverage. The coverage is available to employees, retirees, and their eligible family
members. The cost for each plan varies and is shared between the IRS and the employee. An employee
participating in the FEGLI program can obtain basic term life insurance, with the employee paying
two-thirds of the cost and the IRS paying one-third. Additional coverage is optional, to be paid fully by
the employee. The basic life coverage may continue into retirement if certain requirements are met. The
IRS recognizes the full cost of providing these benefits.
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IRS FY 2021 | Financial Report
Financial Information
Employee Pension Benefits
The IRS recognizes the full costs of its employees’ pension benefits. The liabilities associated with these
costs are reported by the OPM, who administers the plans. Eligibility of employees to participate in the
Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS) is based
on their hire date with the federal government, and the IRS contributes a percentage of an employee’s
basic pay toward the retirement plan.
Employees covered by either CSRS or FERS are also eligible to contribute to the Thrift Savings Plan
(TSP), a defined contribution plan. The IRS is required to contribute to TSP a minimum of 1% per year
of the basic pay of employees covered by this system, match voluntary employee contributions up
to 3% of the employee’s basic pay, and match one-half of contributions between 3% and 5% of the
employee’s basic pay. No TSP matching contributions are made to the CSRS.
Employee Pension Benefit Contribution Rates
Category
Employee
Agency
Regular
7.0%
7.0%
Law Enforcement Officers
7.5%
7.5%
FERS Rates
Hired Prior to January 1, 2013
Regular
0.8%
17.3%
Law Enforcement Officers
1.3%
35.8%
FERS – Revised Annuity Rate
Hired January 1, 2013 - December 31, 2013
Regular
3.1%
15.5%
Law Enforcement Officers
3.6%
34.0%
FERS – Further Revised Annuity Rate
Hired January 1, 2014 or Later
Regular
4.4%
15.5%
Law Enforcement Officers
4.9%
34.0%
CSRS Rates
S. Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States of America requires
management to make certain estimates and assumptions related to the reporting of assets, liabilities,
revenues, expenses, and the disclosure of contingent liabilities. Actual results could differ from these
estimates.
T. Classified Activities
Statement of Federal Financial Accounting Standards (SFFAS) No. 56, Classified Activities, states
Accounting Standards allow certain presentations and disclosures to be modified, if needed, to prevent
the disclosure of classified information.
U. Reclassifications
Certain FY 2020 balances have been reclassified to conform to the FY 2021 OMB A-136 presentation of
the Balance Sheet, SCNP, and accompanying disclosures in the current year.
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IRS FY 2021 | Financial Report
Financial Information
Note 2. Fund Balance with Treasury
(In Millions)
2021
Unobligated Balances
Available
Unavailable
Obligated Balance Not Yet Disbursed
Non-Budgetary and Other FBWT
Status of Fund Balance with Treasury
$
$
2,303
257
2,434
2,068
7,062
2020
$
$
1,085
311
2,054
1,619
5,069
Non-budgetary and other FBWT includes Section 1332 SIWP funds. As of September 30, 2021, the
grantee has not drawn down the funds per the terms of the grant. In FY 2021 and FY 2020, the SIWP
funds were $2,058, and $1,612 million, respectively.
The status of FBWT includes obligated and unobligated balances. The obligated balances not yet
disbursed represent the unpaid funds with budgetary obligations. Unobligated balances, available
represent amounts in unexpired appropriations as of the end of the current fiscal year. Unobligated
balances become available when apportioned by the OMB. Unobligated balances, unavailable represent
amounts in expired appropriations and amounts not apportioned for obligation as of the end of the
current fiscal year.
Note 3. Non-entity Assets
2021
(In Millions)
Due From General Fund of the U.S.
Government
Federal Taxes Receivable, Net
Other Monetary Assets
Non-Entity Assets
Intragovernmental
$
6,248
$
6,248
2020
With
the Public
$
-
$
302,000
1,455
303,455
Intragovernmental
With
the Public
$
3,750
$
-
$
3,750
$
236,000
785
236,785
Non-entity assets are not available for use by the IRS. Federal taxes receivable, net are collected for the
U.S. Government, but the IRS does not have the authority to spend them.
Note 4. Cash and Other Monetary Assets
(In Millions)
2021
With the Public
Imprest Fund
Other Monetary Assets
Cash and Other Monetary Assets
$
$
60
4
1,455
1,459
2020
$
$
2
785
787
IRS FY 2021 | Financial Report
Financial Information
Note 5. Federal Taxes Receivable, Net
(In Billions)
2021
With the Public
Federal Taxes Receivable
Allowance For Uncollectible Taxes Receivable
Federal Taxes Receivable, Net
$
$
493
(191)
302
2020
$
$
427
(191)
236
Federal taxes receivable are taxes due from taxpayers for which the IRS can support the existence of
a receivable through either a taxpayer agreement or a court ruling determining an assessment. Federal
taxes receivable, net is the portion of Federal taxes receivable estimated to be collectible and the
corresponding liability is Due to General Fund of the U.S. Government which is to be transferred when
collected. The taxes receivable consists primarily of two categories:
. Delinquent tax assessments, penalties, and interest not paid or abated, which were agreed to by
the taxpayer and the IRS or upheld by the courts. As of September 30, 2021, the net Federal taxes
receivable for this category was $53 billion, an increase of $8 billion over the $45 billion reported for
FY 2020. The majority of the increase was driven by higher estimated collectability.
. Non-delinquent assessments are detailed in Note 1.E. As of September 30, 2021, the net Federal
taxes receivable for this category was $249 billion. These non-delinquent assessments consist of two
categories:
• IRC Section 965(h) which allowed taxpayers to elect to pay this tax on an eight-year installment
schedule. As of September 30, 2021, net Federal taxes receivable for IRC Section 965(h) consist
of $143 billion, a decrease of $25 billion from $168 billion reported for FY 2020, due to receiving
scheduled tax payments.
• The CARES Act, Section 2302 which contained a provision for employers to defer payment of
the employer’s share of the Social Security portion of FICA, and their portion and the employee
representative’s share of the Railroad Retirement tax. The net Federal taxes receivable for Section
2302 deferrals consists of $106 billion, an increase of $83 billion over the $23 billion reported for
FY 2020. The increase was due to additional employer tax deferrals.
For taxes receivable, specific collectability methods were applied to each of the categories mentioned
above to determine allowance for uncollected taxes receivable:
. Delinquent tax assessments. In FY 2021, to derive the estimated collectability rate applied to
delinquent gross Federal taxes receivable, the IRS utilized the FY 2021 sample collectible point
estimate of $57 billion (+/- $10.0 billion). The IRS averaged three years of collectability rates (FY
2019-2021) to normalize the effect of year-to-year fluctuations. In FY 2020, the $45 billion in taxes
receivable, net, was derived from a three-year average including the FY 2020 collectible point
estimate of $40 billion (+/- $8.6 billion).
. IRC Section 965(h) elections. In FY 2021, the IRS used an updated econometric methodology
to derive its collectability estimate. This methodology considered indicators of financial health of
the largest business modules (more than 90% of the remaining unpaid deferral balance) along
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IRS FY 2021 | Financial Report
Financial Information
with industry specific data in determining the degree to which IRC Section 965(h) taxpayers are
considered to be at-risk of non-payment. IRC Section 965(h) taxes receivable estimated collectability
was 90.6% overall due to the high collectability from large businesses outweighing the remaining
smaller businesses and individuals who are at-risk due to global uncertainties. The FY 2020 overall
collectability estimate for IRC Section 965(h) was 94.3%.
. Social Security Tax Deferral. For FY 2021, the legislation authorizing Social Security Tax Deferrals
resulted in $83 billion in new non-delinquent unpaid assessments to be paid over two-yearly
installments. Businesses determined to be at-risk for non-payment of an IRC Section 965(h) election
were considered at-risk for non-payment of Social Security Tax Deferral. The IRS considered
businesses not at-risk to be fully collectible. This resulted in an estimated 99.9% collectability for
Social Security Tax Deferrals in FY 2021. In FY 2020, there were $23 billion in new non-delinquent
unpaid assessments, and an overall 99.6% estimated collectability for Social Security Tax Deferrals.
Note 6. General Property and Equipment, Net
(In Millions)
IT Equipment
IUS
IUS - In Development
LHI
Vehicles
Non-IT
Assets Under Capital Lease
Investigative Equipment
LHI Construction in Progress
Property and Equipment
Useful
Life
(Years)
3 to 7
2 to 15
N/A
2 to 10
5
8 and 10
4.5 to 8
10
N/A
$
$
Cost
1,028
3,423
454
233
3
103
27
5
33
5,309
Accumulated
Depreciation
$
(647)
(2,597)
(154)
(2)
(66)
(18)
(3)
$
(3,487)
2021
Net Book
Value
$
381
826
454
79
1
37
9
2
33
$ 1,822
2020
Net Book
Value
$
434
882
402
71
1
42
12
1
26
$ 1,871
The Cost column represents the historical cost of property and equipment, net of disposals. The cost
basis for FY 2021 and FY 2020 was $5,309 and $5,379 million, respectively. Accumulated depreciation
for FY 2021 and FY 2020 was $3,487 and $3,508 million, respectively.
In FY 2021, the IRS changed the capitalization policy to expense new acquisitions of laptops/desktops,
furniture, and end user software. Accordingly, the IRS removed $221 million in cost and accumulated
depreciation related to fully depreciated assets in these categories previously capitalized.
Components of the Changes in General Property and Equipment, Net
(In Millions)
$
Balance Beginning of Year
Capitalized Acquisitions
Dispositions
Depreciation Expense
Balance at End of Year
$
62
2021
1,871
345
(8)
(386)
1,822
IRS FY 2021 | Financial Report
Financial Information
Note 7. Due to General Fund of the U.S. Government
(In Millions)
2021
Intragovernmental
Federal Taxes Receivable, Net
FBWT
Due to General Fund
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