Provide America’s taxpayers top-quality service (2023)
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2023
AGENCY
FINANCIAL
REPORT
MISSION STATEMENT
MISSION
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.
VALUES
Honesty and Integrity: We uphold the public trust
in all that we do; we are honest and forthright in all
of our internal and external dealings.
Respect: We treat each colleague, employee
and taxpayer with dignity and respect.
Continuous Improvement: We seek to perform
the best that we can today, while embracing
change, so that we can perform even better in
the future.
Inclusion: We embrace diversity of background,
experience, and perspective.
Openness and Collaboration: We share
information and collaborate, recognizing that we
are a team.
Personal Accountability: We take responsibility
for our actions and decisions and learn and grow
from our achievements and mistakes.
Table of Contents
II
INTRODUCTION
107 OTHER INFORMATION
ii
About This Report
iii
Certificate of Excellence in
Accountability Reporting
108 Section A: Summary of Financial
Statement Audit and Management
Assurances
iv
Message from the Commissioner
1
MANAGEMENT'S DISCUSSION
AND ANALYSIS
110 Section B: Tax Burden, Tax Gap and
Tax Expenditures
115 Section C: Management and
Performance Challenges
149 Section D: Grants Programs
2
About the IRS
5
Performance Overview
32
Enterprise Risk Management
34
Analysis of Financial Statements
43
Analysis of Systems, Controls and
Legal Compliance
159 APPENDICES
47
Management Assurances
161 Appendix B: How to Contact Us
49
Forward-Looking Information
162 Appendix C: Acknowledgements
150 Section E: Refundable Tax Credits
and Other Outlays and Social
Security and Medicare Taxes
160 Appendix A: Glossary of Acronyms
51 FINANCIAL INFORMATION
52
Message from the Chief Financial
Officer
54
Independent Auditor's Report
63
Enclosure: IRS Response to the
Independent Auditor's Report
65
Financial Statements
72
Notes to the Financial Statements
102 Required Supplementary Information
IRS FY 2023 | AGENCY FINANCIAL REPORT
i
Introduction
INTRODUCTION
ABOUT THIS REPORT
This Agency Financial Report presents the Internal Revenue Service’s (IRS) financial information in
relation to its mission and resources entrusted to it for the Fiscal Year (FY) 2023 (October 1, 2022, to
September 30, 2023) reporting period. This report also highlights select accomplishments and
challenges in implementing programs that promote the IRS’s mission. Although the IRS is a bureau
within the Department of the Treasury (Treasury), this report is titled Agency Financial Report to be
consistent with similar reports in the federal government.
The IRS presents this report in accordance with Office of Management and Budget’s Circular A-136,
Financial Reporting Requirements, as a component of Treasury. This report includes Circular A-136 core
principles and requirements applicable to a component entity. This financial report is available on www.
irs.gov/about-irs/irs-financial-reports.
How This Report is Organized
The Agency Financial Report consists of the following sections:
Section 1: Management’s Discussion and Analysis (Unaudited)
Provides a high-level overview of the IRS’s history, mission and organizational structure; strategic
framework; programmatic performance; enterprise risks; analysis of financial statements; analysis of
systems, controls and legal compliance; management assurances related to the IRS’s internal controls;
and forward-looking information. United States (U.S.) generally accepted accounting principles issued
by the Federal Accounting Standards Advisory Board require the Management’s Discussion and
Analysis be presented as required supplementary information to the financial statements.
Section 2: Financial Information
Includes a message from the Chief Financial Officer (CFO), Independent Auditor’s Report and IRS
response, audited financial statements and accompanying notes, and unaudited required supplementary information.
Section 3: Other Information (Unaudited)
Contains a summary of the Financial Statement Audit and Management Assurances; Tax Burden, Tax
Gap and Tax Expenditures; Management and Performance Challenges; Grants Programs; and
Refundable Tax Credits and Other Outlays. Treasury reports on Payment Integrity and Climate–Related
Financial Risk in its Agency Financial Report (home.treasury.gov/about/budget-financialreporting-planning-and-performance/agency-financial-report). For information on Payment Integrity,
see PaymentAccuracy.gov (www.paymentaccuracy.gov).
ii
IRS FY 2023 | AGENCY FINANCIAL REPORT
Introduction
CERTIFICATE OF EXCELLENCE IN ACCOUNTABILITY REPORTING
In May 2023, AGA presented the IRS its first Certificate of Excellence in Accountability Reporting award
for its FY 2022 Agency Financial Report (www.irs.gov/pub/irs-prior/p5456--2022.pdf). The Certificate
of Excellence is the highest form of recognition in federal government financial management and performance accountability reporting. As a first-time winner of this distinguished award, the IRS is honored to
be recognized for demonstrating the highest standards in financial and performance accountability
reporting. It is a significant accomplishment that showcases our reporting excellence in the financial
management community.
Additionally, the IRS received recognition with a Best-In-Class award for Most Improved Presentation of
Management’s Discussion and Analysis for outstanding explanation of the strategic plan, providing
performance measures for all goals and effectively addressing prior year comments provided by the
AGA’s review panel.
Certificate of Excellence in
Accountability Reporting
Certificate of Excellence in
Accountability Reporting
presented to the
BEST-IN-CLASS AWARD
®
®
presented to the
Internal Revenue Service
Internal Revenue Service
in recognition of
in recognition of outstanding effort in preparing the
Agency Financial Report for fiscal year 2022
most improved presentation of performance in an MD&A
in the Agency Financial Report for fiscal year 2022
Andrew Lewis, CGFM, CPA
Chair, CEAR Board
Andrew Lewis, CGFM, CPA
Chair, CEAR Board
Ann M. Ebberts, MS, PMP
Chief Executive Officer, AGA
Ann M. Ebberts, MS, PMP
Chief Executive Officer, AGA
AGA is an association for professionals who work in the areas of financial management, accounting,
auditing, information technology, budgeting, policy, grants management, performance management
and other business operations areas to help the government work more efficiently and effectively. The
Certificate of Excellence in Accountability Reporting Program was established by the AGA, in
conjunction with the Chief Financial Officers Council and the Office of Management and Budget, to
further performance and accountability reporting.
IRS FY 2023 | AGENCY FINANCIAL REPORT
iii
Introduction
MESSAGE FROM THE COMMISSIONER
On behalf of the dedicated IRS staff, I am pleased to present the IRS
Agency Financial Report for FY 2023. This report provides an assessment
of the IRS’s financial status and demonstrates how the IRS used entrusted
resources in support of its mission 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.
Guided by the IRS’s core values of Honesty and Integrity, Respect,
Continuous Improvement, Inclusion, Openness and Collaboration and
Personal Accountability, the IRS workforce works diligently to serve the
people of the U.S.
The IRS collects significant funding for the nation’s operations and most critical programs, including
national defense, infrastructure and health. Currently, nearly all of the funding that keeps the federal
government running comes through the IRS. Through the hard work of our committed employees, the
IRS collected about $4.7 trillion in gross revenues.
After enactment of the Inflation Reduction Act of 2022 (IRA), the IRS developed a detailed Strategic
Operating Plan for FY 2023-2031 (SOP) (www.irs.gov/about-irs/irs-inflation-reduction-act-strategicoperating-plan) that consists of 5 transformational objectives and 42 initiatives the IRS will be working on
through FY 2031 when the funding expires. One early success story, that was only possible with the
additional funding from the IRA, was the IRS’s ability to hire an additional 5,000 Customer Service Representatives to answer taxpayer calls. This allowed the IRS to achieve a filing season (January 23 through
April 21) Level of Service of 87%, compared to 15% in the prior year. I am incredibly proud of what the IRS
was able to achieve in FY 2023, and I know that with the additional funding provided to the IRS through
the IRA, the IRS will be able to achieve even more for taxpayers and tax administration in FY 2024.
Key Areas of Focus:
Implementing the IRS Vision: In FY 2023, the IRS made incredible progress on many areas highlighted in
the SOP, and many more are in progress as the IRS works to modernize the way it serves taxpayers
through improved technology, better service and fairer enforcement. Substantial work was done to
advance the objectives and the performance goals of the plan.
The Paperless Process Initiative is a clear example of how, with the right funding and priorities, the IRS
can quickly move operations to meet the taxpayer’s needs. By the 2025 filing season, the IRS has an
ambitious goal to digitize all paper-filed returns as soon as they are received. In addition, the IRS will
add more non-tax forms in digital, mobile-friendly formats that will make it easier for taxpayers to
complete and submit electronically.
iv
IRS FY 2023 | AGENCY FINANCIAL REPORT
Introduction
Transforming the IRS also means continuing to improve service on the phones and in person. In
FY 2023, the IRS announced the expansion of the customer callback option (having the option to get a
call back instead of waiting on hold) to cover 95% of all taxpayers seeking live assistance. The IRS
answered more calls from taxpayers seeking help than last year and significantly reduced phone wait
times by hiring additional Customer Service Representatives. The IRS also provided more in-person
assistance with 363 Taxpayer Assistance Centers open for business.
2023 Filing Season: During the 2023 filing season, the IRS received more than 137 million individual
federal tax returns and issued nearly 86 million refunds totaling more than $236 billion. The infusion of
IRA funding enabled the IRS to provide taxpayers with a substantially better experience in the 2023
filing season than in previous years.
Reducing the Paper Return Inventory: Addressing a key Coronavirus Disease 2019 (COVID-19)
pandemic challenge, the IRS continued to reduce the backlog of paper tax returns and correspondence. I am pleased to report that thanks to the tireless perseverance of IRS employees, the IRS
processed all paper and electronic original returns received in 2022 that had no errors and didn’t require
further review. As a result, individual returns are no longer backlogged and processing this filing season
is at normal levels.
Safeguarding Taxpayer Data: The COVID-19 pandemic and resulting legislation increased identity
theft and other scams. The IRS continued to make advances in this area, protecting taxpayers and the
tax system. In fact, the Treasury Inspector General for Tax Administration (TIGTA) noted the progress the
IRS is making. In a report released on May 10, 2023, it stated the IRS “continues to increase the number
of fraudulent tax returns detected and stopped from entering the tax processing system,” which
prevents the issuance of fraudulent refunds associated with those returns. Contributing to this progress
has been an increase in the number of filters the IRS uses to identify potential identity theft tax returns
– 236 this filing season, compared to 168 filters during the 2022 filing season – according to TIGTA.
Tax Scams and Fraud: Improving public warnings about scams that threaten taxpayers remains a
priority for the IRS. The IRS is on the side of taxpayers and is working to protect hard-working people
from scammers or fraudsters who try to use the tax system for their schemes. Whether it is promising
people inflated amounts of Earned Income Tax Credit, a credit designed to help workers with modest
incomes, or tricking people into tax-related identity theft, protecting taxpayers is a critical component to
ensuring the success of the nation's tax system. The IRS will continue its aggressive work into the 2024
filing season, building off of efforts like the Dirty Dozen (www.irs.gov/newsroom/dirty-dozen) to warn
taxpayers about quickly emerging scams and schemes.
IRS FY 2023 | AGENCY FINANCIAL REPORT
v
Introduction
This fiscal year, the IRS saw a significant increase in tax scams and marketing related to the Employee
Retention Credit, a credit designed to support eligible businesses affected by the COVID-19 pandemic.
Promoters have been aggressively marketing this program to businesses that may not be eligible to
claim these credits, putting them at financial risk and requiring the IRS to devote extra staff to process
the large influx of new Employee Retention Credit claims. To address potential fraud, the IRS increased
audits by specially trained auditors and criminal investigative activities against both the promoters as
well as the businesses filing these dubious claims and implemented a moratorium on processing new
claims beginning September 14, 2023, to run through at least December 31, 2023.
Compliance Efforts: Anchored by a deep respect for taxpayer rights, the IRS is deploying new
resources toward cutting-edge technology to improve visibility on where the wealthy shield their income
and to focus staff attention on the areas of greatest abuse. The IRS will increase compliance efforts on
those posing the greatest risk to the nation's tax system, whether it's the wealthy looking to dodge
paying the correct amount or promoters aggressively peddling abusive schemes. These steps are
critical for the future of the nation's tax system.
In its High Wealth, High Balance Due Taxpayer Field Initiative, the IRS will intensify work on taxpayers
with total positive income above $1 million and more than $250,000 in recognized tax debt. Building off
earlier successes that collected $38 million from more than 175 high-income earners, the IRS will have
dozens of Revenue Officers focusing on these high-end collection cases in FY 2024. The IRS is working
to expand this effort, contacting about 1,600 taxpayers in this category who collectively owe hundreds
of millions of dollars in taxes.
Investing in the IRS Workforce: The IRS’s greatest asset is its workforce, and the IRS is working to
raise its workforce numbers up from 1970s-era levels to better serve taxpayers and the nation. In
addition to providing work-life balance programs, tuition reimbursement, student loan reimbursement
and childcare subsidies to retain current employees, the IRS is looking to recruit new employees to
meet current and future challenges. In addition to new hires for in-person and telephone support, IRA
resources have enabled the IRS to increase staffing in other service-related areas, including Submission
Processing and Information Technology. In FY 2024, we will begin to heavily recruit Revenue Agents,
who will be responsible for auditing the most complex tax returns of high wealth/high income
individuals, partnerships and corporations.
Exhibiting Financial Stewardship: I am pleased to report that the IRS maintained an unmodified (clean)
financial statement audit opinion for the 24th consecutive year. Based upon the results of internal control
evaluations, I can provide reasonable assurance that the performance and financial information in this
report is complete and accurate. The IRS continues to strengthen management controls and make
progress toward remediating the significant deficiencies in internal control over financial reporting to meet
all U.S. financial systems compliance and conformance objectives as outlined in the Management’s
Discussion and Analysis – Analysis of Systems, Controls and Legal Compliance.
vi
IRS FY 2023 | AGENCY FINANCIAL REPORT
Introduction
The bottom line is the IRS, after the funding provided by IRA, is in a very different place. But the reality is
that the IRS has much, much more work ahead to build on these improvements. I am confident that
even more can be accomplished across the IRS. This is good news for employees, good news for
taxpayers and a step forward for the nation.
So, in conclusion of the fiscal year and completion of the first year of implementing the SOP, I am
confident the IRS will continue to improve the taxpayer experience and increase the efficiency and
effectiveness of its operations with continued discretionary budget support and continued funding. I am
proud to lead this work in collaboration with my colleagues, valued partners in the tax community and
national, state and local partners to provide an effective and efficient tax system that is fair and
equitable for all.
Sincerely,
Daniel I. Werfel
Commissioner of Internal Revenue
November 3, 2023
IRS FY 2023 | AGENCY FINANCIAL REPORT
vii
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MANAGEMENT'S
DISCUSSION
AND ANALYSIS
Management's Discussion and Analysis
ABOUT THE IRS
The IRS is a bureau of the Treasury. The IRS carries out the responsibilities of the Secretary of the
Treasury under Internal Revenue Code Section 7801. The Secretary has full authority to administer and
enforce the Internal Revenue Code and has the power to create an agency to enforce these laws.
Internal Revenue Code Section 7803 provides for the appointment of a Commissioner of Internal
Revenue to administer and supervise the execution and application of the Internal Revenue Code.
The IRS is one of the world’s largest tax administrators. In FY 2023, the IRS collected about $4.7 trillion
in taxes, which represents nearly all of the revenue that supports the federal government’s operations.
Some key tax statistics in FY 2023 include:
275M
$ 4.7T
$3,101
$86.1B
Federal Tax
Returns and Forms
Processed
Collected in Gross
Taxes
Average Individual
Refund
Enforcement
Revenue Collected
Note: These statistics are from October 1, 2022, through September 30, 2023. The Average Individual
Refund amount includes refunds issued in FY 2023 for all tax years.
History
The IRS is one of the oldest bureaus in the U.S. 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 Defence 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. N.W., Washington D. C.
2
IRS FY 2023 | AGENCY 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 while enforcing the law with integrity and fairness to all.
This mission statement describes the IRS’s role − and the public's expectation about − how the IRS
should perform that role.
• In the U.S., the Congress passes tax laws and requires taxpayers to comply.
• The taxpayer’s role is to understand and meet their 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 collecting taxes, processing tax returns, assisting taxpayers,
enforcing tax laws and investigating tax crimes. The extensive 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 and
Investment, Small Business/Self-Employed, Large Business and International and Tax Exempt and
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.
Commissioner Werfel stopped for a group photo with
Rhode Island Taxpayer Advocate Service employees.
IRS FY 2023 | AGENCY FINANCIAL REPORT
An important part of Commissioner Werfel's visits was to
hear directly from employees about their ideas and
concerns.
3
Management's Discussion and Analysis
IRS Organizational Structure
Taxpayer
Experience Office
IRS Independent
Office of Appeals
4
National Taxpayer
Advocate
Commissioner
Office of the
Chief Counsel
Chief of Staff
Communications
and Liaison
Equity, Diversity &
Inclusion
Operations Support
Services and
Enforcement
Enterprise Digitalization
and Case Management
Research, Applied
Analytics and Statistics
Criminal Investigation
Wage and Investment
Division
Information Technology
Human Capital Office
Return Preparer Office
Large Business and
International Division
Facilities Management
and Security Services
Office of the
Chief Financial Officer
Office of Professional
Responsibility
Small Business SelfEmployed Division
Office of the Chief
Procurement Officer
Privacy, Governmental
Liaison and Disclosure
Office of Online
Services
Tax Exempt and
Government Entities
Division
Lifting Communities Up
Office of the
Chief Risk Officer
Enterprise Digitalization
and Case Management
Whistleblower Office
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
PERFORMANCE OVERVIEW
IRS Strategic Framework
The IRA was signed into law on August 16, 2022, giving the IRS a historic opportunity to transform tax
administration and services provided to taxpayers and tax professionals. The long-term funding provided
by the IRA will allow the IRS to improve services to the public; enable needed technology modernization;
provide employees with new tools, skills and capabilities; and effectively enforce the tax laws.
Shortly after enactment, Treasury and the IRS
developed an IRS IRA Strategic Operating
Plan FY 2023-2031 (www.irs.gov/about-irs/
irs-inflation-reduction-act-strategic-operatingplan). The SOP envisions a modernized IRS
that is focused on the customer experience,
prefers digital to manual processes and prioritizes compliance efforts that focus on complex
tax issues and high-income individuals,
complex partnerships and large corporations.
It outlines how the IRS will deliver transformational change for taxpayers. Each IRS organization aligns its programs and performance
within this framework, and this SOP will serve
as a guide for decision-making by IRS
leadership and project managers. It also
supports key government-wide strategic
priorities from the President’s Management
Agenda including strengthening the federal
workforce, delivering an excellent customer
experience, enhancing clean energy efforts,
increasing equity and supporting underserved
communities.
Internal Revenue Service
Inflation Reduction Act
Strategic Operating Plan
FY2023 – 2031
While the SOP supersedes the IRS Strategic Plan FY 2022–2026, it is based in part on insights from that
strategic plan and other planning efforts. The IRA gives the IRS the resources to turn those plans to
improve the way it serves taxpayers into reality.
IRS FY 2023 | AGENCY FINANCIAL REPORT
5
Management's Discussion and Analysis
The SOP is structured to achieve five objectives which will be accomplished through a series of initiatives and projects aligned as such:
Strategic Objective 1
Dramatically improve services to help taxpayers meet their
obligations and receive the tax incentives for which they
are eligible.
Strategic Objective 2
Quickly resolve taxpayer issues when they arise.
Strategic Objective 3
Focus expanded enforcement on taxpayers with complex
tax filings and high-dollar noncompliance to address the
tax gap.
Strategic Objective 4
Deliver cutting-edge technology, data and analytics to
operate more effectively.
Strategic Objective 5
Attract, retain and empower a highly skilled, diverse workforce and develop a culture that is better equipped to
deliver results for taxpayers.
The IRS Transformation and Strategy Office Advisory Committee was established in January 2023 as
the decision-making body for IRS transformation. A Chief Transformation and Strategy Officer joined
the IRS in July 2023 to provide leadership for this effort. Change management practices are built into all
initiatives and project plans incorporate measures of success, as appropriate. Champions are
appointed to lead ongoing projects throughout the IRS to achieve, communicate and monitor the IRS’s
cultural goals.
The Transformation and Strategy Office monitors risks for all SOP objectives. Many of these risks are
shared across the 5 objectives and 42 initiatives and are monitored from an enterprise level. This
includes the risk of insufficient management and functional support, such as hiring and procurement
capacity. There are functional risks associated with the interdependencies of initiatives, where delays in
one initiative could impact the ability of another initiative to commence work. Additionally, there is a
funding risk, as Congress considers cutting IRA funding or reducing annual appropriations due to the
IRA funding. If the IRS does not receive funding needed to maintain base operations, transformation will
be in jeopardy. Without adequate discretionary base funding, IRA funding will be needed to support
normal operations, or the IRS will not be able to deliver all improved services nor transform its information technology as outlined in the SOP. The Transformation and Strategy Office will continue to track
and monitor all risks, and take corrective action where needed to ensure organization-wide success.
As Treasury’s largest bureau, the IRS plays a critical role in advancing the Treasury Strategic Plan
2022–2026 (home.treasury.gov/about/budget-financial-reporting-planning-and-performance/agencyfinancial-report) by co-leading the “Tax Policy and Administration” strategic objective and supporting
nine other objectives across all five Treasury goals.
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Major Programs
The IRS demonstrates responsible stewardship over taxpayer dollars by aligning major programs and
performance measures with budgetary resources as appropriated by Congress. The SOP consists of
five objectives. Objectives 1 through 4 align to the major programs in the IRS Statement of Net Cost and
the IRS distributes the costs associated with Objective 5 across the major programs. Funding for major
programs includes annual appropriations and IRA.
SOP Objectives and Initiatives
Strategic Objective 1: Dramatically improve services to help taxpayers meet
their obligations and receive the tax incentives for which they are eligible.
1.1 Improve the availability and accessibility of customer service.
1.2 Expand digital services and digitalization.
1.3 Ensure employees have the right tools.
1.4 Improve self-service options.
1.5 Explore direct file.
1.6 Enable taxpayers to access their data.
1.7 Provide earlier legal certainty.
1.8 Deliver proactive alerts.
1.9 Help taxpayers understand and claim appropriate credits and deductions.
1.10 Make payments easy.
1.11 Build status-tracking tools for taxpayers.
1.12 Streamline multichannel customer assistance.
Major Program:
Service to the Taxpayer
IRS FY 2023 | AGENCY FINANCIAL REPORT
Total Program Cost:
$5,949 million
7
Management's Discussion and Analysis
Strategic Objective 2: Quickly resolve taxpayer issues when they arise.*
2.1 Identify issues during filing.
2.2 Deliver early and appropriate treatments for issues.
2.3 Develop taxpayer-centric notices.
2.4 Expand tax certainty and issue resolution programs.
2.5 Offer proactive debt resolution.
2.6 Expand engagement with non-filers.
2.7 Use improved data and analytics to tailor timely collections contacts.
Major Program:
Enforcement of Tax Legislation
Total Program Cost:
Objective 2 is combined with Objective 3
Strategic Objective 3: Focus expanded enforcement on taxpayers with
complex tax filings and high-dollar noncompliance to address the tax gap.*
3.1 Employ centralized, analytics-driven, risk-based methods to aid in the selection
of compliance cases.
3.2 Expand enforcement for large corporations.
3.3 Expand enforcement for large partnerships.
3.4 Expand enforcement for high-income and high-wealth individuals.
3.5 Expand enforcement in areas where audit coverage has declined to levels that
erode voluntary compliance.
3.6 Pursue appropriate enforcement for complex, high-risk and emerging issues.
3.7 Promote fairness in enforcement activities.
Major Program:
Enforcement of Tax Legislation
*
Total Program Cost:
$10,916 million
The total costs of Objectives 2 and 3 align to Major Program, Enforcement of Tax Legislation.
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Strategic Objective 4: Deliver cutting-edge technology, data and analytics to
operate more effectively.
4.1 Transform core account data and processing.
4.2 Accelerate technology delivery.
4.3 Improve technology operations.
4.4 Continue to ensure data security.
4.5 Maximize data utility.
4.6 Apply enhanced analytics capabilities to improve tax administration.
4.7 Strategically use data to improve tax administration.
4.8 Partner to expand insights.
Major Program:
Transformation of Business Systems
Total Program Cost:
$943 million
Strategic Objective 5: Attract, retain, and empower a highly skilled, diverse
workforce and develop a culture that is better equipped to deliver results for
taxpayers.**
5.1 Redesign hiring and onboarding.
5.2 Attract a talented and diverse workforce.
5.3 Improve the employee experience.
5.4 Help employees grow and develop.
5.5 Develop a data-savvy workforce.
5.6 Elevate workforce planning strategy.
5.7 Improve organizational structures and governance.
5.8 Build a culture of service and continuous improvement.
**
The IRS distributes costs associated with Objective 5 initiatives among Objectives 1, 2, 3 and 4.
IRS FY 2023 | AGENCY FINANCIAL REPORT
9
Management's Discussion and Analysis
IRS Performance Measurement Reporting Process
The IRS Congressional Budget Justification & Annual Performance Report and Plan (www.irs.gov/
about-irs/budget-documents), approved by the IRS Commissioner and Deputy Commissioners,
includes key performance measures, with annual and outyear targets and key performance indicators,
which are tracked without targets when initially created, in the absence of historical data, and when
there’s a lessened degree of control over the
measurable value. Targets are not required for
indicators. The IRS uses these key metrics to
assess progress in achieving the success in
Fiscal Year
major program areas and reports its performance data in the IRS Congressional Budget
Justification & Annual Performance Report and
Congressional
Plan. All performance ratings in the FY 2023
Budget Justification
Agency Financial Report are considered
&
preliminary. The IRS will publish its final ratings
Annual Performance
in the FY 2025 IRS Congressional Budget
Justification & Annual Performance Report and
Report and Plan
Plan, which is generally published after the
State of the Union Address.
2024
Summary of FY 2023 Results: The IRS has a
total of 28 key performance measures and key
performance indicators that support IRS major
program areas, of which 19 are key performance measures with targets and 9 are key
performance indicators. The IRS exceeded the
FY 2023 target for 14 out of 19 key perforIRS-i
mance measures and 3 out of 6 key performance indicators are trending in the desired
direction compared to the prior year result.
Results were not available for 3 key performance indicators; those results will appear in the FY 2025 IRS
Congressional Budget Justification & Annual Performance Report and Plan.
Publication 4450 (Rev. 2-2023) Catalog Number 39720Z Department of the Treasury Internal Revenue Service www.irs.gov
Refer to the Verification and Validation of Performance Data information at the end of this performance
overview section for details on the IRS’s approach to verification and validation of performance data
and performance measurement reporting.
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Strategic Objective 1: Dramatically improve services to help taxpayers meet
their obligations and receive the tax incentives for which they are eligible.
Major Program | Service to the Taxpayer
Filing taxes can be time-consuming and difficult;
however, the IRS strives to meet demands for
taxpayer services. Taxpayers want a more
seamless filing process, similar to the services
available in other sectors. The IRS is committed to
significantly improving services by providing
taxpayers, including individuals, businesses and
tax professionals, with tools, information and
assistance to make it easier for them to comply.
In FY 2023, the IRS continued efforts to improve the
availability and accessibility of customer service by
holding Taxpayer Experience Days (opening
Taxpayer Assistance Centers on select Saturdays)
during the filing season and in May for walk-in
services. The IRS conducted outreach events in
underserved and rural communities to provide direct
assistance to taxpayers who do not have convenient
access to a live assistor.
The IRS continued to expand digital services and
digitalization during FY 2023 using the new Digital
Enablement Platform and launching a pilot for
enhanced scanning of key tax forms. The IRS
completed both a full implementation plan for
Online Account enhancements developed for
individual, business and tax professional online
accounts and worked to expand taxpayers’ ability
to schedule payments, cancel scheduled
payments and save bank information.
IRS FY 2023 | AGENCY FINANCIAL REPORT
The IRS streamlined several customer assistance
options by building and implementing new
options that allow taxpayers to communicate with
the IRS across different channels, including
enhanced options to submit documents online.
The IRS began developing authentication requirements for online-to-phone cross-channel
capability as well as developing authorization and
data policy for business entities to support
Business Account access capability for Business
Online Account access and activity.
The IRS has undertaken efforts to expand
identity-proofing, make more services available to
authenticated taxpayers and expand access for
certain types of taxpayers, such as Individual Tax
Identification Number holders and international
taxpayers. This includes expanding 24/7
customer support in more than 240 languages for
the video chat verification option.
While the IRS continues to make changes to
improve the availability and accessibility of
customer service, taxpayers saw immediate
improvements during the 2023 tax season. The
level of service for the filing season was 87%,
including an average taxpayer telephone wait time
of approximately three minutes. This was a big
improvement compared to 28 minutes in tax
season 2022.
11
Management's Discussion and Analysis
Objective 1 Performance Results
The IRS met or exceeded 5 out of 6 of its Objective 1 key performance measures and 1 out of 3 of the
key performance indicators are trending in the desired direction compared to the prior year result.
TABLE 1: Summary of key performance results for Fiscal Years 2019–2023
Key Performance Measures
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
Customer Service Representative Level of Service1
65.4%
53.1%
18.5%
17.4%
60.0%
51.8%
Customer Accuracy – Tax Law (Phones)2
91.6%
91.0%
92.8%
92.0%
87.0%
91.4%
Customer Accuracy – Accounts (Phones)3
94.3%
93.5%
93.0%
91.8%
87.0%
89.2%
Timeliness of Critical Individual Filing Season Tax
Products to the Public4
92.6%
78.4%
92.0%
96.4%
83.0%
96.4%
Timeliness of Critical TE/GE & Business Tax
Products to the Public5
96.1%
96.0%
92.9%
96.0%
85.0%
86.5%
Enterprise Self-Assistance Participation Rate6
85.4%
90.6%
92.3%
93.9%
94.0%
94.2%
Target met, or indicator trending in the desired direction compared to the prior year result.
Target not met, or indicator not trending in the desired direction compared to the prior year result.
** Historical data provided for comparative purpose.
** Results not available and are not included in the total Key Performance Indicators count above. Results will appear in the IRS FY 2025
Congressional Budget Justification & Annual Performance Report and Plan.
The number of toll-free callers that either speak to a Customer Service Representative or receive informational messages divided by the total
number of attempted calls. From October 1, 2022, through September 30, 2023, Customer Service Representative Level of Service was 51.8%,
which was 13.6% below the target of 60%, and an increase of 197.8% over the prior year actual level of service of 17.4%. The level of service
for the filing season (from January 23 through April 21) was 87%. The IRS allocated employees in October through December, from accounts
management that answer phone calls, to assist in processing correspondence. This resulted in delivering a lower level of service. Customer service
representatives answered around 17.9 million calls in FY 2023 while accounts management demand fell 52.3% to 38.8 million, from 81.3 million in
FY 2022. Average wait time was 10.1 minutes, which was less than half the average from the prior fiscal year of 26.0 minutes. In FY 2023, around
8.5 million taxpayers were offered a callback and 64% accepted. This resulted in around 2.4 million hours saved for the taxpayer, providing a better
experience. To meet service goals, the IRS will continue to monitor demand in real time and the resources allocated down to the half hour enabling
us to regularly shift people between telephones and paper.
2
The percentage of correct answers given by a live assistor on toll-free tax law inquiries.
3
The percentage of correct answers given by a live assistor on toll-free account inquiries.
4
The percentage of critical individual filing season tax products available to the public seven calendar days before the official IRS start of the
individual filing season.
5
The percentage of critical Tax Exempt and Government Entities and business tax products available to the public seven calendar days before the
official IRS start of the individual filing season.
6
The percentage of taxpayer assistance requests resolved using self-assisted automated services.
1
12
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Key Performance Measures
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
Key Performance Indicators
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
Taxpayers Satisfied with the IRS7
73
74
70
69
Indicator
N/A**
Total Ending Inventory (Thousands)*,8
1,100
1,100
4,100
2,156
Indicator
2,923
Percent of Closures to Receipts*
92.7%
99.6%
71.9%
116.4%
Indicator
93.8%
Level of Service(A)*
79.2%
71.6%
38.2%
39.3%
Indicator
66.4%
,9
,10
Target met, or indicator trending in the desired direction compared to the prior year result.
Target not met, or indicator not trending in the desired direction compared to the prior year result.
** Historical data provided for comparative purpose.
** Results not available and are not included in the total Key Performance Indicators count above. Results will appear in the IRS FY 2025
Congressional Budget Justification & Annual Performance Report and Plan.
The score of taxpayers satisfied with the IRS according to the American Customer Satisfaction Index survey. The All-Individual Tax Filer score is
calculated from separate American Customer Satisfaction Index Individual Paper Filer and Electronic Filer Customer Satisfaction Index Scores. Based
on a 100-point scale.
8
The total number of accounts management and correspondence work to be processed in inventory. Ending correspondence inventory was higher in
FY 2023 mainly due to an increase in amended business returns received. This indicator was added to performance reporting in FY 2022.
9
The number of adjustment cases closed compared to the number received. This indicator was added to performance reporting in FY 2022.
10
The relative success rate of taxpayers that call seeking assistance and receive a response to their inquiry by an assistor or through automated
responses divided by the total number of attempted calls. This indicator was added to performance reporting in FY 2023.
7
During a Community Assistance Visit event, a
cross-functional group of employees in
Hastings, Nebraska helped taxpayers with
their concerns.
IRS FY 2023 | AGENCY FINANCIAL REPORT
13
Customer callback option now available for up to 95% of
callers seeking live assistance
In July, the IRS expanded the availability of its
customer callback option to cover up to 95% of
callers seeking live assistance. Expanding
customer callback is one of several
improvements to taxpayer service outlined in the
IRS’s SOP. The main goal of the customer
callback feature is to enhance the taxpayer’s
experience with the IRS by giving them more
options when call volumes are high.
The long road to expanding
customer callback
Customer callback was first offered by the IRS in
January 2019. At that time, it was available on
one toll-free application. In the subsequent years,
the option was expanded incrementally. By
January 2023, the customer callback option had
been expanded to cover 43 toll-free applications
which represented 75% of the live assistance
volume. The agency also had an enterprise
solution in place to replace the pilot program.
“This was a huge effort that required
tremendous collaboration and coordination
across the IRS. The team’s efforts resulted in
the delivery of the customer callback feature a
year ahead of schedule,” shares Wage and
Investment Commissioner Ken Corbin.
Stock Imagery, Luis Alvarez, gettyimages
The expansion included adding the customer
callback option to an additional 73 toll-free
applications, bringing the total number of
applications with an option for customer callback
to 116. Applications are used to route taxpayers
to destinations for service on specific topics.
“From a technical perspective, we’ve turned a
corner on what we can do to improve the
experience of calling the IRS,” said Vaishali
Narkhede, the acting executive lead for the live
assistance program in Information Technology.
“I’m incredibly proud of the team and hopeful
that the expansion substantially reduces the
need for repeat calls to the IRS.”
Since January 2019 through the end of July
2023, taxpayers have saved more than 8.6
million hours by not being on hold. The
customer satisfaction survey results state that
more than 85% of the taxpayer’s surveyed said
they were satisfied with their callback
experience.
On the horizon: more technology
improvements to enhance
customer service
Based on data and trends in customer
preferences,1 the IRS continues to invest in
technology improvements that will enhance
customer service. This includes technology
investments that make it easier to pay your taxes
over the phone, investments in digital options for
communicating back-and-forth with the IRS
across different channels, as well as investments
to enhance the tools people use to track the
status of their refund and/or amended return.
1
Looking ahead, the IRS plans to add and
enhance the conversational voicebots available
on toll-free lines, as well as adding chatbots
that make it easier for people to get the
information they need without needing to wait
on the availability of customer service
representatives.
This was a huge effort that
required tremendous
collaboration and coordination
across the IRS. The team’s efforts
resulted in the delivery of the
customer callback feature a year
ahead of schedule.
–Ken Corbin
Wage and Investment Commissioner
Most people say they initiate contact with the IRS through the agency’s website and toll-free numbers, according to results from the 2021
Comprehensive Taxpayer Attitude Survey. In addition, most taxpayers believe the IRS should focus its efforts on improving in-person and phone call
assistance to taxpayers.
Management's Discussion and Analysis
Strategic Objective 2: Quickly resolve taxpayer issues when they arise.
Major Program | Enforcement of Tax Legislation
Millions of taxpayers make simple mistakes when
completing their returns, and millions fail to
properly claim tax incentives for which they are
eligible. Resolving these and other simple mistakes
can be a prolonged process. Through investments
in data management and taxpayer communications tools, the IRS will work to resolve these issues
faster and prevent their recurrence. The initiatives
that support this objective will leverage a multichannel outreach approach.
In FY 2023, Online Account for individuals
provided 19 specific notices that taxpayers are
able to view, print or download. It also allows
some taxpayers to respond to certain notices
online and quickly resolve issues using a secure
two-way communication channel. These
taxpayers can chat with IRS employees, view and
send messages and receive and upload applicable documents via their online account. Also,
Duplicate Dependent notices are sent to
taxpayers when a dependent on their tax return
was also claimed on another return. The notice
provides them with information on accurately
claiming dependents and immediate actions to
take if a dependent was claimed in error. In
addition, the IRS continued its efforts to increase
awareness of tax certainty programs and their
benefits to taxpayers with complex issues.
The IRS published an Interim Guidance
Memorandum setting forth guidance for considering Advance Pricing Agreement submissions
from taxpayers. As part of its initiative to offer
proactive debt resolution, the IRS updated the
self-service payment plan functionality in Online
Account for individual taxpayers. The IRS worked
to expand engagement with non-filers by developing notices for IRS core tax processing systems
for the Case Creation Non-Filer Identification
Process and to launch a pilot program to address
new non-filers.
Using IRS Online Account on
IRS.gov allows you to easily do
several things with your taxpayer
account. Find out more by
visiting: www.irs.gov/account.
View this and other helpful videos
on IRS's Youtube Channel,
IRSVideos.
16
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Objective 2 Performance Results
The IRS met the target of its Objective 2 key performance measure and 2 out of 2 of the key performance indicators are trending in the desired direction compared to the prior year result.
TABLE 2: Summary of key performance results for Fiscal Years 2019–2023
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
41.3%
34.9%
41.2%
38.3%
33.4%
34.9%
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
60.9%
66.3%
66.0%
68.0%
Indicator
72.0%
Time to Resolve Compliance Issue After Filing*
469
491
484
404
Indicator
372
Repeat Noncompliance Rate*,4
31.4%
35.6%
30.7%
28.1%
Indicator
N/A**
Cost to Collect $1005
$0.33
$0.35
$0.33
$0.29
Indicator
N/A**
Key Performance Measures
Collection Coverage1
Key Performance Indicators
Time to Start Compliance Resolution*,2
,3
Target met, or indicator trending in the desired direction compared to the prior year result.
Target not met, or indicator not trending in the desired direction compared to the prior year result.
** Historical data provided for comparative purpose.
** Results not available and are not included in the total Key Performance Indicators count above. Results will appear in the IRS FY 2025
Congressional Budget Justification & Annual Performance Report and Plan.
The volume of collection work disposed compared to the volume of collection work available.
The percentage of all individual income tax enforcement cases started within six months of the return posting date. This indicator was added to
performance reporting in FY 2020.
3
The median time it takes to close all individual income tax enforcement cases in days (excluding disaster, bankruptcy and Tax Equity and Fiscal
Responsibility Act cases for exam and collection cases that are not closed as full paid) starting from filing date. This indicator was added to performance reporting in FY 2020.
4
The percentage of individual taxpayers in a fiscal year with noncompliance two years after the initial tax year that contains a filing, payment or
reporting compliance issue, compared to total taxpayers. This indicator was added to performance reporting in FY 2020.
5
The cost of collecting $100 is computed as total operating costs divided by gross collection multiplied by 100.
1
2
IRS FY 2023 | AGENCY FINANCIAL REPORT
17
The IRS continues reopening Taxpayer Assistance Centers;
47 reopened following IRA funding
As part of an expanding effort to improve
service, the IRS continued reopening Taxpayer
Assistance Centers across the country while
also starting a special series of events, such as
Community Assistance Visits, to help taxpayers
located in areas not close to the IRS's
in-person offices.
In these new Community Assistance Visits, the
IRS sets up a temporary Taxpayer Assistance
Center to give taxpayers from underserved
areas an opportunity to meet face-to-face with
IRS assistors. This is part of a larger effort
underway to transform the IRS and improve
service to taxpayers as part of the new SOP
with funding made available through the IRA.
The IRS conducted events in Michigan,
Nebraska, Idaho, Alaska, Hawaii, Oregon and
Puerto Rico.
“A key part of the IRS transformation effort is to
get taxpayers the help they need,” said IRS
Commissioner Danny Werfel. “While an
important part of this involves providing
improved online tools and services, in-person
assistance is a vital piece that the IRS cannot
overlook. We continue to add staff and reopen
previously closed offices. But to help people
farther away, these special community visits are
designed to get into places where IRS offices
are a long distance away or are not convenient
for some taxpayers. We want to do more to
help taxpayers, and the IRS is putting our
additional funding to work through important
projects like this.”
The IRA provided the IRS with long-term
funding for the agency to transform its
operations and improve taxpayer service,
enforcement and technology. Projects like the
Community Assistance Visits represent part of
the SOP, the blueprint for the agency’s
transformation work.
For years, observers have noted that IRS
Taxpayer Assistance Centers are limited in
number or far away from many people who
need in-person help or who don't have access
to online tools. To address this, the IRS
reopened 47 Taxpayer Assistance Centers in
FY 2023; a list is provided. In addition, the IRS
has hired more than 745 personnel to provide
in-person assistance at Taxpayer Assistance
Centers. This represents a 31% net increase in
staffing compared to FY 2022, and IRS
continues to hire to replace departing staff.
Taxpayer Assistance Centers have served
about 235,000 more taxpayers in FY 2023 than
FY 2022, an 18% increase.
IRS Taxpayer Assistance Centers
Number of Taxpayer
Assistance Centers
1–5
6–10
11–20
21–30
The IRS reopened 47 Taxpayer Assistance Centers in FY 2023.
• Monroe, LA
• Parkersburg, WV
• Overland Park, KS
• York, PA
• Bend, OR
• West Nyack, NY
• Topeka, KS
• Greenville, MS
• Binghamton, NY
• Utica, NY
• Trenton, NJ
• Casper, WY
• Fayetteville, AR
• Bellingham, WA
• Fort Myers, FL
• Hickory, NC
• Augusta, ME
• Grand Junction, CO
• Rome, GA
• Jackson, TN
• Rockford, IL
• Plantation, FL
• Joplin, MO
• Hagerstown, MD
• Panama City, FL
• Colorado Springs, CO
• DASE (Guaynabo), PR
• Cranberry Township, PA
• Glendale, AZ
• Johnson City, TN
• Peoria, IL
• Cranberry Township, PA
• Prestonsburg, KY
• Huntington, WV
• La Crosse, WI
• Vienna, VA
• Lincoln, NE
• Charlottesville, VA
• Greensboro, NC
• La Vale, MD
• Queensbury, NY
• Bloomington, IL
• Altoona, PA
• Santa Fe, NM
• Ponce, PR
• Fredericksburg, VA
• Longview, TX
Management's Discussion and Analysis
Strategic Objective 3: Focus expanded enforcement on taxpayers with
complex tax filings and high-dollar noncompliance to address the tax gap.
Major Program | Enforcement of Tax Legislation
Even with improved taxpayer service, some
taxpayers will not comply. The rising breadth and
complexity of tax administration, coupled with the
sophisticated ways that some taxpayers attempt
to evade tax, have outpaced the IRS’s resources
and ability to monitor compliance and close the
gap between taxes owed and collected. The IRS
will improve efforts to help ensure that the proper
amount of tax is paid and to promote future
compliance.
Pursuant to Treasury’s directive, small businesses
and households earning $400,000 or less will not
see audit rates increase relative to historical
levels. The IRS will increase its focus on segments
20
of taxpayers with complex issues and complex
returns where audit rates are minimal today, such
as those related to large partnerships, large
corporations and high-income and high-wealth
individuals. Modern data analysis tools can
greatly streamline these efforts, and the
technology investments from Objective 4 will
enable this work.
Barriers in the hiring process have led to delays in
the hiring and onboarding of this first wave of
specialists. The IRS is monitoring delays in this
area and leveraging areas where the process can
be expedited when and where possible.
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Objective 3 Performance Results
The IRS met or exceeded 4 out of 6 of its Objective 3 key performance measures.
TABLE 3: Summary of key performance results for Fiscal Years 2019–2023
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
Examination Efficiency – Individual1
109
76
108
101
92
103
Exam Starts – High Income Individuals*,2
2,108
2,693
2,227
3,625
3,817
4,326
Exam Starts – Partnerships*,3
5,823
4,106
4,327
3,155
8,852
6,709
Exam Starts – Large Corporations
(Assets >= $250M)*,4
2,009
1,700
1,490
1,365
1,121
1,400
Criminal Investigations Completed5
2,797
2,624
2,766
2,552
2,500
2,584
Conviction Rate6
91.2%
90.4%
89.4%
90.6%
92.0%
88.4%
Key Performance Measures
Target met, or indicator trending in the desired direction compared to the prior year result.
Target not met, or indicator not trending in the desired direction compared to the prior year result.
** Historical data provided for comparative purpose.
The sum of all individual 1040 returns closed by Small Business/Self-Employed, Wage and Investment, and Large Business and International (Field
Exam and Correspondence Exam programs) divided by the total full-time equivalent expended in relation to those individual returns.
2
The number of examinations of individual returns started during the fiscal year with a total positive income of $10 million and above. This indicator
was added to performance reporting in FY 2021.
3
The number of examinations of partnership returns started during the fiscal year. FY 2023 performance was 6,709, which was a 112% increase
from FY 2022. Exam Starts – Partnerships finished below the target of 8,852 due to lower than expected training starts. Reduced training starts are
the result of delayed phases of training and additional time given to trainees to start partnership returns. This indicator was added to performance
reporting in FY 2021.
4
The number of examinations of large corporate returns started during the fiscal year reporting assets of $250 million and above. This indicator was
added to performance reporting in FY 2021.
5
The total number of subject criminal investigations completed during the fiscal year, including those that resulted in prosecution recommendations
to the Department of Justice as well as those discontinued due to a lack of prosecution potential.
6
The percent of adjudicated criminal cases that result in convictions.
1
IRS FY 2023 | AGENCY FINANCIAL REPORT
21
Nearly 12,000 tax pros attend 2023 IRS Nationwide Tax
Forums
The 2023 IRS Nationwide Tax Forums kicked
off on July 10, in-person for the first time since
2019, drawing nearly 12,000 paid attendees.
The forums – in New Orleans, Atlanta,
Washington, D.C., San Diego and Orlando
– featured continuing education seminars, focus
groups, an exhibition hall, a case resolution
room and multiple special events.
Each forum offered 42 live presentations over
three days – including four seminars presented in
both English and Spanish and a keynote address
by senior IRS leaders including Commissioner
Danny Werfel. Attendees could earn up to 18
continuing education credits per city.
The continuing education agenda included hot
topics in tax administration:
• IRS transformation
• 1099-K reporting changes
• Collection notices
• Cybersecurity
• Digital assets
• Ethics for tax pros
New additions to this year’s program included
four special events. More than 3,000 attendees
participated in these interactive sessions:
• Tax Pro & Entrepreneur: Unleashing Your
Potential in the Tax Industry
• The Written Information Security Plan
• Townhall with the National Taxpayer Advocate
• The Taxpayer Experience: Where It Stands
Today and Where It’s Headed
Meanwhile, the Exhibition Hall featured more
than 90 different tax software, financial and
business service providers. The Exhibition Hall
also included the IRS Zone, with subject matter
experts from the Taxpayer Experience Office,
Online Services, Small Business/Self-Employed,
Wage & Investment, Tax Exempt & Government
Entities and Large Business & International.
IRS hiring was a new feature at this year’s
forums with Human Capital Office recruitment
staff providing information on and interviewing
attendees for positions across the IRS. Also in
2023, the forums launched a pilot outreach
program for college-level accounting students,
hosting 49 students and 10 faculty for a
one-day “tax adventure” at 4 of the 5 forums in
2023. Students and faculty met with IRS
executives, revenue agents and Human Capital
Office hiring staff, attended seminars and
visited the exhibition hall.
Commissioner Werfel delivers the keynote address to a crowd gathered for the 2023 IRS Nationwide Tax Forum in Atlanta, GA.
Management's Discussion and Analysis
Strategic Objective 4: Deliver cutting-edge technology, data and analytics
to operate more effectively.
Major Program | Transformation of Business Systems
Technology improvements at the IRS must always
be driven by what will improve customer service
and enforcement, and in a way that secures
taxpayer information. The key dependency for
many SOP initiatives is the modernization of the
IRS’s core information technology infrastructure,
which includes some of the oldest information
systems in the federal government. Currently, the
IRS cannot get the full value of its data because it
does not standardize or store it in a single
environment.
Until the passage of the IRA, the IRS lacked the
resources to bring its technology infrastructure
into the current era, and the inability to plan for
stable funding led to a start-and-stop approach
that did not allow for sustained progress. IRA
funding will enable the IRS to make dramatic
improvements to its information technology
infrastructure. The multi-year nature of the funding
will allow the service to successfully plan and
deliver. The IRS will design and deliver modern
technology platforms that center around data and
applications, with integrated protective and
detective security controls.
The IRS expanded the use of voicebot for
taxpayers calling via authenticated Collection
Services phone lines, making it easier for people
to fulfill their tax obligations by phone and
expanded service options for taxpayers through
chat services. The IRS expanded secure
messaging to Collection employees that allows
taxpayers and their approved agents (powers of
attorney) to communicate online with assigned
revenue officers. The IRS also expanded digital
services and digitalization when it delivered the
24
Information Returns Intake System, a free,
modernized online portal, for businesses to
electronically file Form 1099 series information
returns, demonstrating the IRS’s commitment to
finding useful and innovative ways of reducing
paperwork for the business community and others.
Moreover, taxpayers can now receive and
respond to more notices online with the expanded
use of the Document Upload Tool. Taxpayers or
their tax professionals can use the Document
Upload Tool to electronically upload documents
rather than mailing them, helping reduce time and
effort resolving tax issues. In addition, the IRS is
working to ensure employees have the right tools.
The IRS continued implementing a single desktop
tool for IRS customer service agents to manage
calls and chats as part of the “Agent Desktop
Modernization” effort and deployed Enterprise
Case Management Release 5 providing additional
system functionality for various IRS organizations,
enabling employees to work and resolve taxpayer
issues more efficiently.
The IRS launched another new public-facing
program that allows taxpayers to report tax law
violations by individuals or businesses through an
online portal on IRS.gov. The IRS continued to
enhance online self-service options for taxpayers
by offering new expanded online account capabilities, such as enabling taxpayers to use their
Online Account to create a long-term payment
plan and to electronically file Form 1040-X,
Amended U.S. Individual Income Tax Return. For
the first time, taxpayers will have the ability to use
direct deposit for all refunds.
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
In FY 2023, the IRS enhanced Vulnerability and
Threat Management capabilities by delivering
analytics tools that leverage machine learning to
proactively identify and respond to emerging
insider threats and fraudulent behavior. The IRS
designed and implemented a new artificial intelligence capability that actively learns how to
recognize fraud user behavior.
Objective 4 Performance Results
The IRS met or exceeded 3 out of 4 of its Objective 4 key performance measures.
TABLE 4: Summary of key performance results for Fiscal Years 2019 – 2023
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
Rentable Square Feet per Person1
298
278
278
264
261
248
Percent of Aged Hardware2
31.0%
16.0%
9.3%
7.1%
20.0%
19.9%
Percent of Major Information Technology
Investments Within +/- 10% Cost Variance
at the Investment Level3
88.9%
84.2%
94.1%
81.3%
90.0%
85.7%
Percent of Major Information Technology
Investments Within +/- 10% Schedule Variance
at the Investment Level4
88.9%
94.7%
100.0%
87.5%
90.0%
92.8%
Key Performance Measures
Target met, or indicator trending in the desired direction compared to the prior year result.
Target not met, or indicator not trending in the desired direction compared to the prior year result.
** Historical data provided for comparative purpose.
The amount of rentable square feet the IRS maintains per person requiring space.
This measure shows the percentage of all information technology hardware in operation that is past its useful life.
3
The number of major information technology investments within +/-10% variance between planned total cost and projected/actual cost within a
fiscal year divided by the total number of major information technology investments in the fiscal year. Twelve of 14 major investments were within
the cost variance threshold at the close of the 4th quarter. Authentication, Authorization and Access underspent due to applications that will be
migrated after filing season 2024 instead of FY 2023. Integrated Data Retrieval System underspent due to a mid-year 2023 project that contributed
to a very small variance. Underspent funds will be requested in FY 2024 to complete planned activities. IRS will continue to closely monitor cost
reporting for investments in FY 2024 to improve current performance levels for this measure.
4
The number of major information technology investments within +/-10% variance between planned days and projected/actual days within a fiscal
year divided by the total number of major information technology investments in the fiscal year.
1
2
IRS FY 2023 | AGENCY FINANCIAL REPORT
25
Secretary Yellen and Commissioner Werfel visit
digital-intake scanning facility in Virginia
Treasury Secretary Janet Yellen and
Commissioner Danny Werfel visited a digitalintake scanning facility in McLean, VA to see
technology improvements in action and
announce an ambitious plan to dramatically
reduce paper inside the IRS starting next year
and into 2025. Yellen and Werfel highlighted
developments on IRS progress toward the
digitalization of paper tax returns and other
documents. They noted that initiatives like this
digital-intake effort serve as concrete examples
of IRS accomplishing goals set forth in the SOP
and funded by IRA. Yellen and Werfel toured
and received a demonstration at the
high-speed digital-intake site where
cutting-edge technology is being used to scan
paper documents as part of ongoing
transformation efforts.
In the first quarter of 2023, IRS scanned 80
times more paper returns than in all of 2022
and taxpayers were able to respond online to
the 10 most common tax notices, Yellen noted.
“We’ve made it easier and quicker for Americans
to interact with the agency,” Yellen said.
Yellen showcased another specific goal for IRS
that will be achieved through IRA funding and
expansion of customer service initiatives. “Today,
we’re announcing that – by the next filing season
– taxpayers will be able to digitally submit all
correspondence, non-tax forms, and notice
responses to the IRS,” said Yellen, who went on
to note that taxpayers could still respond with
paper correspondence at their own preference,
and they, too, would benefit from this and other
digitalization efforts. “For those taxpayers, by
filing season 2025, the IRS is committing to
digitally process 100% of tax and information
returns that are submitted by paper – as well as
half of all paper correspondence, non-tax forms,
and notice responses. It will also digitalize
historical documents that are currently in storage
at the IRS.”
We’ve made it easier and
quicker for Americans to
interact with the agency.
–Janet Yellen
Treasury Secretary
Commissioner Werfel echoed Secretary Yellen’s
comments regarding IRS achievements and
future IRA-enabled commitments. “We’ve seen
some major accomplishments, and many more
are in progress as we work to modernize the way
we serve taxpayers through improved
technology, better service and fairer
enforcement,” said Werfel. “But the Paperless
Process Initiative we’re launching today stands
out as a special one out of all these projects. It’s
a very clear example of how with the right
funding and the right priorities, we can relatively
quickly move the IRS operations decades
forward.”
The Commissioner also took time to
acknowledge the internal effort that make these
achievements possible. “This has been a team
effort,” he said. “I want to recognize the IRS’s
Office of Enterprise Digitalization – who we
fondly refer to inside the IRS as ‘Team Digi’ – as
well as the various IRS operating divisions
participating in the scanning initiative that has
been a long time in the making,” Werfel said,
highlighting contributions from Wage and
Investment, Information Technology, Privacy,
Governmental Liaison and Disclosure and
Procurement.
Werfel added, “There are many other parts of
the IRS involved in this effort, including the
Taxpayer Advocate Service. And a central part
of this effort will be our new Transformation and
Strategy Office, which is helping put in place
scanning as part of the new SOP. I deeply
appreciate all their hard work to get us where
we are today and to keep us moving forward in
this vital area.”
The Digital Intake Center in McLean, VA employs cutting edge
technology to quickly and accurately scan paper documents as part of
IRS’s ongoing modernization efforts
Others leading the charge to modernize the IRS
through digital intake were themselves well
aware of the impact of this demonstration and
the importance of this ongoing effort. “It was an
honor to represent #teamdigi and our many
stakeholders in demonstrating one of several
cutting-edge optical recognition advancements
the IRS is harnessing to serve taxpayers better
for Secretary Yellen,” said Harrison Smith,
Project Director, Enterprise Digitalization
Management. “I am very proud to be part of the
team as we move forward with truly
evolutionary step and am excited to see how
things will continue to improve under the
leadership of the Digitalization Initiative.”
Management's Discussion and Analysis
Strategic Objective 5: Attract, retain and empower a highly skilled, diverse
workforce and develop a culture that is better equipped to deliver results for
taxpayers.
To offer taxpayers world-class service, the IRS will
invest in attracting, developing and retaining
exceptional talent. People are the heart of the IRS
and its most valued asset. Despite momentous
challenges including funding, technology and
staffing constraints, IRS employees remain resilient
and are vital to implementing the strategies and
pursuing the priorities to meet all SOP objectives.
The IRS will invest in and focus on people,
equipping and empowering them with the
technology, equipment, training and tools they
need to be successful. The IRS will assess and
reshape its workforce to meet future requirements, foster a positive employee experience and
create a workplace that reflects the diversity of
the taxpayers it serves and the unique talents of
each person. IRS employees will have the modern
tools and upgraded facilities they need to perform
their best, collaborate effectively and build
meaningful connections within and across teams.
During FY 2023, the IRS developed an enterprisewide recruiting strategy for Revenue Agents and
will expand the strategy to other priority positions
as it works toward a unified, enterprise-wide
recruiting strategy.
Work is currently underway to improve the
employee experience across the IRS, such as
performing external scans on best practices of
other federal agencies and options for supplementing existing awards programs. The IRS also
performed work in areas targeted toward helping
employees cultivate and grow, as well as developing a data-savvy workforce. This includes
soliciting sprint teams to focus on curriculum
development including simulation labs, leadership
coaching, mentoring and avatars. Additionally, the
IRS completed several facility inspections to
create a safer working environment and began
addressing major deficiencies in key working
locations.
Fiscal Year 2023, the STARS* Recruitment Team Stats
52,008
job seekers engaged
21
48
13,526
in-person events
supported in
tentative job offers sent
different cities
61
virtual events held
20
events emphasized the Agency’s
commitment to hiring Veterans,
Individuals with Disabilities
(Schedule A) and cultivating a
diverse workforce
*Strategic Talent Analytics & Recruitment Solutions office
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Objective 5 Performance Results
The IRS met or exceeded 1 out of 2 of its Objective 5 key performance measures and the key performance indicator is not trending in the desired direction compared to the prior year result.
TABLE 5: Summary of key performance results for Fiscal Years 2019 – 2023
Key Performance Measures
Attrition Rate1
Hiring Cycle Time*
,2
Key Performance Indicators
Employee Engagement Index3
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
7.31%
6.15%
7.52%
9.72%
7.97%
8.43%
117.6
119.5
98.6
80.63
80
77.14
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Target
2023
Actual
68.6%
74.2%
73.5%
73.1%
Indicator
72.9%
Target met, or indicator trending in the desired direction compared to the prior year result.
Target not met, or indicator not trending in the desired direction compared to the prior year result.
** Historical data provided for comparative purpose.
Attrition Rate is the total number of full-time permanent employees that left the IRS during the fiscal year divided by the number of full-time
permanent employees on board at the beginning of the fiscal year plus the number of full-time permanent new hires. The attrition rate was higher
than projected as a result of resignations, mostly customer service representatives during and after initial technical training.
2
Hiring Cycle Time is the number of days between the date a hiring request is approved (or a certificate is issued) to the enter on duty date. This
measure was added to performance reporting in FY 2019.
3
The Office of Personnel Management Employee Engagement Index is a measure of the conditions conducive to engagement. The index consists of
15 items grouped into three subindices: Leaders Lead, Supervisors, and Intrinsic Work Experience. The Office of Personnel Management measures
this government-wide. The change in the IRS Employee Engagement Index from the prior year is not statistically significant and remained above the
government-wide average of 71.7%.
1
IRS FY 2023 | AGENCY FINANCIAL REPORT
29
Management's Discussion and Analysis
Verification and Validation of Performance Data
The IRS requires complete, accurate and reliable performance data to assess progress toward its strategic
objectives and program outcomes to make good management decisions. The IRS's approach to verification
and validation of performance data to improve accuracy and reliability is based upon the following:
1. The IRS reviews performance measures through its annual performance assessment process with
Treasury. This assessment includes reviewing the extent to which currently reported performance
measures support the strategic plan and priorities and identifying or developing new performance
measures to fill any gaps.
2. IRS business units use a standard template to document detailed information for each performance
measure. The IRS includes these measure templates in its comprehensive data dictionary, which it
maintains corporately and updates annually. For each measure, the data dictionary includes information including, but not limited to:
• Definition
• Source of the data
• Business unit
• Data limitations
• Responsible Official
• Management controls
• Formula/methodology for computation
3. The Responsible Official for the measure is responsible for assessing the completeness, consistency, timeliness and quality of the data, following the documented procedures for gathering the data
and ensuring management controls are in place. The Heads of Office are accountable for their performance results. These positions vary by business unit.
4. The CFO's Strategic Planning office reviews quarterly and year-end performance measure results
before sharing the results with the Senior Executive Team and/or publishing them in Treasury and IRS
documents. The Strategic Planning office also independently reviews the performance measure
targets and accompanying documentation to ensure the targets reasonably reflect allocated funding.
If anomalies occur, the Strategic Planning office informs the business unit, which makes any necessary adjustments. Leadership reviews all target adjustments as part of the budget development and
review process.
5. As part of managing the portfolio of enterprise performance measures, the Strategic Planning office
conducts ad-hoc meetings with business units to discuss topics such as: oversight, responsibilities
of ownership, guidance on measurement and reporting and organizational change.
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
6. At the end of each fiscal year, the business units who are involved in the collection and reporting of
these measures receive a notification from the Strategic Planning office, reminding them of their
responsibility for:
• Ensuring the quality and accuracy of the performance data,
• Reviewing and following Internal Revenue Manual guidelines when proposing new and modifying
existing measures and
• Ensuring there are sufficient controls in place for proper and accurate reporting of their performance results.
These procedures help to provide assurances that the performance data and internal controls reported
by the IRS are sufficiently complete, accurate and reliable.
Detailed guidance on the appropriate use and application of performance information appears in
Internal Revenue Manual 1.5.1: The IRS Balanced Performance Measurement System (www.irs.gov/
irm/part1/irm_01-005-001).
IRS FY 2023 | AGENCY FINANCIAL REPORT
31
Management's Discussion and Analysis
ENTERPRISE RISK MANAGEMENT
In compliance with the Office of Management and Budget Circular No. 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 objectives. The annual Enterprise Risk Assessment process includes
internal and external environmental scanning activities and a comprehensive aggregation and analysis
of business unit risks.
Over the last 12 months, the IRS has seen its risk environment transformed. From the passage of the
IRA, to emerging challenges and opportunities implementing SOP initiatives, the only guarantee is that
the IRS will continue to face new and evolving risks to its mission. Existing challenges remain as the IRS
works toward increasing and training enforcement staff, modernizing information technology, tackling a
rapidly evolving fraud risk environment and handling increased insider risk complexities.
Risk is about uncertainty, and while significant progress has been made in many areas, including many
of the risks below, the IRS’s challenge lies in maintaining that positive trajectory in an uncertain future.
The use of emerging technologies will provide opportunities for the IRS to improve and enhance operations, while also posing risks to security posture for fraud, cyber and data. Additionally, the shift from
labor shortages to challenges surrounding recruiting and onboarding new personnel, including
contractors, as well as providing effective oversight, has shifted the nature of several risks to achieving
the IRS's mission. Understanding all of these intersecting risks and opportunities, the top six IRS enterprise risks over the next 12-18 months are:
• Data Security: The risk that an inability to protect sensitive data from unauthorized access,
disclosure, use, modification, or destruction may result in exposure of taxpayer or other sensitive
data, potentially negatively impacting public trust.
• 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, including increased audit activities, may adversely impact the ability to
fulfill core responsibilities and commitments to modernize technology, enhance service delivery
and more effectively enforce the tax law, ultimately eroding trust and confidence in the IRS.
• Information Technology Modernization, Operations, Support and Funding Levels: The risks
centered around Information Technology systems maintaining continuity (Operations and Maintenance funding), improving capabilities (Modernization), reducing aged hardware and software
and strengthening cybersecurity protections that may expose them to threats and outages
reducing efficiency and effectiveness of IRS operations, ultimately limiting the IRS from
performing its core mission.
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
• Critical Staffing Challenges: The risk that challenges with hiring and backfilling employees,
including those with specialized skills and expertise, coupled with increased attrition and
challenges to onboard new employees, may result in critical business failures, diminished service
to taxpayers, loss of institutional knowledge, dependence on contractors and a lack of resilience
to events impacting employees' ability to work.
• Adverse Impact of Reduced Enforcement on Compliance: The risk that reduced enforcement
activities may adversely impact compliance, erode confidence in the tax administration system
and contribute to the tax gap.
• Cybersecurity: The risk that the increased complexity and sophistication of cyber threats on
computer systems, networks, and digital assets from cyber-attacks including insider threats,
social engineering and unauthorized access to sensitive information, results in data loss, refund
fraud, identity theft, ransomware, loss of trust or denial of service.
IRS FY 2023 | AGENCY FINANCIAL REPORT
33
Management's Discussion and Analysis
ANALYSIS OF FINANCIAL STATEMENTS
Financial Management Highlights
The financial statements are prepared to report the financial position and results of operations, pursuant
to the requirements of 31 U.S. Code Section 3515(b). The statements are prepared from records of
federal entities in accordance with U.S. generally accepted accounting principles and the formats
prescribed by the Office of Management and Budget. 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. government. The financial management activities that support the responsibilities of the IRS are
divided into two distinct account categories: administrative and custodial. Administrative accounts are
included as appropriations and offsetting collections in the Statements of Budgetary Resources. These
resources are also reflected as assets, liabilities, revenues, expenses, and ultimately the net position of
the IRS. Custodial accounts include activity in support of tax collections. The IRS collects the majority
of receipts for the U.S. government. These receipts are accounted for in designated custodial accounts
as presented on the Statements of Custodial Activity. Custodial accounts are also included in Fund
Balance with Treasury, Federal Taxes Receivable, Net and Federal Tax Refunds Payable.
Financial Statement Overview
In FY 2022, the IRS received $79,411 million in supplemental funding through the IRA. This funding is
available through the end of FY 2031. IRA obligations incurred total $3,396 million and $106 million in
FY 2023 and FY 2022, respectively, with $74,520 million remaining unobligated to carry forward into
FY 2024. The Fiscal Responsibility Act of 2023 rescinded $1,389 million of IRA funding. IRA unobligated
balances at the end of FY 2023 are broken out as follows: Taxpayer Services – $2,292 million,
Enforcement – $43,949 million, Business Systems Modernization – $3,984 million, Operations Support
– $23,792 million, Energy Security – $500 million and Direct E-File Taskforce – $3 million.
The following financial statement analysis provides an overview of the IRS’s financial position and
results of operations with an emphasis on significant variations in financial statement line items.
Complete audited financial statements with accompanying notes, including the independent auditor’s
report, are presented in the Financial Section of this report. In addition, Note 21. COVID-19 Activity and
Note 22. Inflation Reduction Act provide information for budgetary resources, obligations incurred, the
remaining available budgetary resources and specific note disclosure data related to IRS supplemental
appropriations for FY 2023 and FY 2022.
34
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Financial Statement Analysis
Analysis of the Balance Sheets
The Balance Sheets display amounts of future economic benefits owned or available for use (assets),
amounts owed (liabilities) and the residual amounts (net position) at the end of the fiscal year. The
following chart displays changes in Balance Sheet line items as of the fiscal year ended September 30,
2023, compared to September 30, 2022.
($ in Millions)
2023
2022
$ Change
%Change
ASSETS
Federal Taxes Receivable, Net
$182,000
$236,000
$(54,000)
-22.9%
Fund Balance with Treasury
86,347
87,389
(1,042)
-1.2%
Due from the General Fund of the U.S. Government
6,647
6,947
(300)
-4.3%
Other
1,798
1,854
(56)
-3.0%
$276,792
$332,190
$(55,398)
-16.7%
$185,633
$238,624
$(52,991)
-22.2%
Federal Tax Refunds Payable
6,648
6,947
(299)
-4.3%
Other
4,368
2,235
2,133
95.4%
Total Assets
LIABILITIES
Intragovernmental
Federal Employee Benefits Payable
Total Liabilities
1,009
1,003
6
0.6%
$197,658
$248,809
$(51,151)
-20.6%
$77,569
$82,049
$(4,480)
-5.5%
NET POSITION
Unexpended Appropriations
Cumulative Results of Operations
Total Net Position
1,565
1,332
233
17.5%
$79,134
$83,381
$(4,247)
-5.1%
Assets of the IRS primarily comprise: Federal Taxes Receivable, Net; Fund Balance with Treasury; Due
from the General Fund of the U.S. Government; and Other, which primarily consists of Property and
Equipment, Net. The composition of FY 2023 assets is presented as follows:
($ in Millions)
IRS FY 2023 | AGENCY FINANCIAL REPORT
35
Management's Discussion and Analysis
Asset fluctuations primarily include: decreased Fund Balance with Treasury; decreased Federal Taxes
Receivable, Net; and decreased Due from the General Fund of the U.S. Government.
Fund Balance with Treasury decreases of $1,042 million are primarily associated with expenses incurred
against the supplemental appropriations received from the IRA. Due from the General Fund of the U.S.
Government decreased by $300 million as this line item correlates to Federal Tax Refunds Payable.
Amounts Due from the General Fund of the U.S. Government represents funds that will be used as
resources to disburse federal tax refunds.
Federal Taxes Receivable, Net, decreased by $54,000 million in FY 2023 as compared to FY 2022. This
decrease is primarily due to payments on the employer portion of Federal Insurance Contributions Act
Social Security taxes due to the federal government provided under the Coronavirus Aid, Relief and
Economic Security Act. These deferrals are discussed in greater detail in Note 5. Federal Taxes
Receivable, Net.
Liabilities include Intragovernmental (Due to the General Fund of the U.S. Government and Other Liabilities), Federal Tax Refunds Payable, Federal Employee Benefits Payable and Other as detailed in Note 10.
Other Liabilities. The percentage composition of IRS liabilities is depicted in the following chart:
($ in Millions)
Liability fluctuations primarily include decreased Due to the General Fund of U.S. Government,
decreased Federal Tax Refunds Payable and increased Other Liabilities.
Intragovernmental liabilities decreased from the previous fiscal year because of a $54 million decline in
the amount for the Due to the General Fund liability, which is representative of funds that will be
distributed to the General Fund upon collection. This amount is directly correlated with the amount of
Federal Taxes Receivable, Net.
36
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Federal Tax Refunds Payable decreased by $299 million in comparison to FY 2022. Federal tax collections
and refunds owed have both decreased by 4% from the prior fiscal year.
Net Position consists of Unexpended Appropriations and 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, transfers in, revenues,
reimbursements or any combination of the four) to the reporting date of the financial statements. Net
Position decreased by 5% in FY 2023 due to expenditures of the supplemental appropriations received
from the IRA.
Analysis of the Statements of Net Cost
The Statements of Net Cost present the annual cost of operating the IRS’s three major programs: Service
to the Taxpayer, Enforcement of Tax Legislation, and Transformation of Business Systems. Net Cost of
Operations includes Gross Cost less Earned Revenue from user fees and reimbursable agreements.
Net Cost of Operations increased by $1,561 million, or 10% over the prior fiscal year. The Statement of
Net Cost reflects a total of $17,228 million for the period ending September 30, 2023, as compared to
$15,667 million for the period ending September 30, 2022.
Gross Cost increased by $1,607 million due primarily to an increase in expenses incurred against the
IRA appropriation for enforcement and business systems modernization. Earned Revenue increased by
$46 million due to increases in both user fees and the Private Debt Collection program.
IRS FY 2023 | AGENCY FINANCIAL REPORT
37
Management's Discussion and Analysis
Net Cost of Operations by major programs are presented in the table below for the periods ending
September 30, 2023, and September 30, 2022, respectively.
($ in Millions)
Analysis of the Statements of Budgetary Resources
IRS operations are financed through appropriations, spending authority from offsetting collections and
unobligated balances carried forward. Custodial appropriations for taxpayer refunds and refundable tax
credits are not available to the IRS for operational expenditures and are therefore not included in the
presentation of the Statements of Budgetary Resources (refer to Note 16. Statement of Budgetary
Resources for a reconciliation to the Budget of the U.S. Government).
As displayed in the following chart, Total Budgetary Resources decreased by $2,871 million from the
previous fiscal year, which is primarily attributable to obligations incurred against IRA funding. The
FY 2022 IRA appropriation is responsible for the large variations between the Unobligated Balance from
Prior Year Budget Authority and Appropriations lines in the Budgetary Resources section of the report,
as well as the Apportioned and Unapportioned lines in the Status of Budgetary Resources section.
38
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
2023
2022
$ Change
%Change
$80,934
$2,694
$78,240
2,904.2%
Taxpayer Services
2,880
6,038
(3,158)
-52.3%
Enforcement
3,776
51,032
(47,256)
-92.6%
Operations Support
4,181
29,631
(25,450)
-85.9%
Business Systems Modernization
10
5,025
(5,015)
-99.8%
Other
575
802
(227)
-28.3%
11,422
92,528
(81,106)
-87.7%
149
154
(5)
-3.2%
$92,505
$95,376
$(2,871)
-3.0%
($ in Millions)
BUDGETARY RESOURCES
Unobligated Balance from Prior Year Authority
Appropriations (Discretionary and Mandatory)
Total Appropriations
Spending Authority from Offsetting Collections
Total Budgetary Resources
In FY 2023, the IRS incurred obligations of $16,526 million, which represents an increase of
$1,956 million, or 13%, from the previous fiscal year. Higher obligations are due to expenditures from
the IRA supplemental appropriation. The following chart displays the FY 2023 obligations incurred by
category. Miscellaneous includes travel and transportation, grants, printing, and supplies and materials.
($ in Millions)
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.
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 and to
enforce criminal statutes related to violations of internal revenue laws and other financial crimes.
IRS FY 2023 | AGENCY FINANCIAL REPORT
39
Management's Discussion and Analysis
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 to include resources for planning and capital asset acquisition of information
technology systems.
Analysis of the Statements of Custodial Activity
The Statements of Custodial Activity present custodial revenues (federal tax collections), refunds of
federal taxes and dispositions of custodial revenues for the current and prior fiscal years. Custodial
activity is performed on behalf of another entity. The IRS collects federal tax revenues on behalf of the
U.S. government. Additional information relative to the fluctuations discussed below is provided in the
Other Information section of this report.
FY 2023 revenue receipts collected by the IRS totaled about $4.7 trillion, a $207 billion decrease from
$4.9 trillion in FY 2022. Federal tax revenues are reported in six major classifications: Individual Income,
which includes Federal Insurance Contributions Act and Self-Employment Contributions Act; Corporate
Income; Excise; Estate and Gift; Railroad Retirement; and Federal Unemployment.
($ in Billions)
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
The Statements of Custodial Activity also present refunds and outlays made by the IRS on behalf of the
federal government. Total Refunds of Federal Taxes and Outlays include refunds of tax overpayments,
payments for interest and disbursements for refundable tax credits such as the Earned Income Tax
Credit and the Additional Child Tax Credit. Total Refunds of Federal Taxes and Outlays totaled
$659 billion for the period ending September 30, 2023, as compared to $642 billion for the period
ending September 30, 2022, which represents an increase of 3%.
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 Sheets as Federal Taxes Receivable, Net.
2023
2022
Federal Taxes Receivable
Compliance (Amounts not agreed to by taxpayer or courts)
Write-offs (No future collection potential)
$404
94
76
$437
88
77
Total Unpaid Assessments
$574
$602
(In Billions)
UNPAID ASSESSMENTS
The decrease in total unpaid assessments is $28 billion when compared to September 30, 2022. This
decrease in total unpaid assessments is primarily due to non-delinquent Social Security Tax deferral
scheduled final payments and Internal Revenue Code Section 965(h) payments (refer to the Other
Information section of this report for additional information).
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 Note 1.E. Federal Taxes Receivable, Net and Note 5.
Federal Taxes Receivable, Net for further details). Delinquent balances are past due while non-delinquent balances are Internal Revenue Code 965(h) amounts, for repatriated foreign earnings, due at a
future point in time. In FY 2022, non-delinquent balances also included Coronavirus Aid, Relief and
Economic Security Act related Social Security Tax Deferral balances.
2023
2022
Nondelinquent 965h Unpaid Assessments
Nondelinquent Social Security Tax Deferral Unpaid Assessments
Uncollected Branded Prescription Drugs
Delinquent Unpaid Assessments
Delinquent Restitution Based Unpaid Assessments
$123
0
2
276
3
$140
51
0
243
3
Federal Taxes Receivable, Gross
$404
$437
(In Billions)
FEDERAL TAXES RECEIVABLE, GROSS
IRS FY 2023 | AGENCY FINANCIAL REPORT
41
Management's Discussion and Analysis
Collectability Modeling and Economic Conditions
Delinquent unpaid assessments collectability reflects existing economic conditions of the taxpayers’
ability to pay. Indicators of financial health were manually reviewed for publicly traded businesses with
large dollar Internal Revenue Code Section 965(h) amounts due. The analysis determined that large
dollar Internal Revenue Code Section 965(h) taxpayers are primarily in a favorable long-term economic
position to make their future payments. Under the Coronavirus Aid, Relief, and Economic Security Act,
employers can elect to defer payment of the employer’s share of Social Security taxes. The final
installment of Social Security Tax Deferrals was due December 31, 2022.
Federal Taxes Receivable, Net, excludes the estimated uncollectible amount of $222 billion as of
September 30, 2023, and $201 billion as of September 30, 2022. Examples of uncollectible taxes include
taxpayers who agree they owe the tax but are unlikely to pay and businesses with extreme financial
hardships. In FY 2023, overall collectability combines separate collectability calculations for delinquent
taxes receivable, Internal Revenue Code Section 965(h) amounts and restitution-based assessments.
Estimated Collectability: Federal Taxes Receivable Gross and Net
As of September 30, 2023
($ in Billions)
Collectability
Gross
Net
Nondelinquent 965h Unpaid Assessments
94.3%
$125
$118
Delinquent Unpaid Assessments
23.1%
279
64
Federal Taxes Receivable, Gross and Net
$404
$182
($ in Billions)
As of September 30, 2022
Nondelinquent 965h Unpaid Assessments
Nondelinquent Social Security Tax Deferral Unpaid
Assessments
Delinquent Unpaid Assessments
Federal Taxes Receivable, Gross and Net
42
Collectability
Gross
Net
96.5%
$140
$135
90.7%
51
47
21.9%
246
54
$437
$236
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
ANALYSIS OF SYSTEMS, CONTROLS AND LEGAL COMPLIANCE
Federal Managers' Financial Integrity Act
Background
The Federal Managers' Financial Integrity Act of
1982 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.
Office of Management and Budget Circular A-123
provides implementing guidance for the Federal
Managers' Financial Integrity Act and defines
management’s responsibility for establishing and
assessing internal controls. The Circular also
requires federal agencies to adhere to the
Government Accountability Office’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 (Federal Managers' Financial Integrity Act
Section 2). Additionally, agencies are required to
assess whether financial management systems
comply with federal financial management
systems requirements (Federal Managers'
Financial Integrity Act Section 4).
IRS FY 2023 | AGENCY FINANCIAL REPORT
The agency’s executive assessment team,
Management Controls Executive Steering
Committee, brief the Deputy Commissioner of
Operations Support and the Deputy Commissioner of Services and Enforcement regarding any
significant deficiencies. Executives from different
divisions provide quarterly updates on the status
of these deficiencies and any current or pending
audits regarding these.
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.
Internal Control over Reporting
In accordance with Office of Management and
Budget 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 these 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
43
Management's Discussion and Analysis
regarding the effectiveness of its internal control
over financial reporting as of September 30, 2023.
Federal Financial Management Improvement
Act of 1996
The Federal Financial Management Improvement
Act requires federal agencies to implement and
maintain financial management systems that
comply substantially with federal financial
management systems requirements, applicable
federal accounting standards and the U.S.
Standard General Ledger at the transaction level.
As described in Office of Management and
Budget 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 Federal Financial Management Improvement
Act 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
Office of Management and Budget Circular A-123,
Appendix D, Compliance with the Federal
Financial Management Improvement Act and
other federal financial management system
requirements. The IRS's assessment process
includes the use of the Federal Financial
Management Improvement Act Compliance
Determination Framework, in Office of
Management and Budget 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. It is an outcomebased approach to assessing Federal Financial
44
Management Improvement Act compliance
through a series of financial management goals
that are common to all agencies.
In applying the 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 its
financial management systems comply substantially with Federal Financial Management
Improvement Act. 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 the overall assessment, the IRS
concluded that its financial management systems
did not comply substantially with federal financial
management system requirements as of
September 30, 2023, due to significant
deficiencies.
The IRS has two significant deficiencies in internal
control over financial reporting related to its
unpaid assessments and information system
controls. 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) unresolved and new internal control
deficiencies related to information system
controls. The IRS worked diligently during
FY 2023 to continue to enhance its information
technology security posture and continues to
implement a strategy and assessment process to
verify the effectiveness of internal controls for the
information systems that affect the financial
statements. This assessment supports the IRS’s
overall internal control framework and helps
mitigate deficiencies in the information technology
environment.
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
Financial Management Systems
The IRS developed its financial management
systems to generate timely and accurate data and
comply with applicable laws and regulations,
while protecting data and systems through the
design, implementation and monitoring of strong
internal controls. The IRS objectives are to continuously improve financial management systems by
implementing enhancements that expand and
streamline financial transaction processing,
analysis and reporting, while operating in a robust
security environment.
The IRS’s financial management systems provide
timely, accurate and complete financial information to generate the IRS’s financial statements
and provide IRS business units data to execute
their missions. IRS's financial management
systems comprise of two major components.
The Redesigned Revenue Accounting Control
System is a custom-built software database used
to account for and summarize all IRS revenue tax
transactions and activities. The IRS uses the
Redesigned Revenue Accounting Control System
to record, control, account for, reconcile and
balance all revenue accounting activity, including
tax payment collections and refunds, receivables,
appropriation warrants, refundable tax credits and
other transactional revenue activities on behalf of
the federal government. The Redesigned Revenue
Accounting Control System specifically supports
the IRS revenue responsibilities to ensure the
accuracy and completeness of tax collections,
disbursements and related activities in its financial
reports and records.
The Integrated Financial System is comprised of
three SAP software components: the Enterprise
Resource Planning Central Component,
Procurement for Public Sector and Business
Warehouse. The Integrated Financial System
IRS FY 2023 | AGENCY FINANCIAL REPORT
interfaces with multiple systems, including, but
not limited to, Invoice Processing Platform,
ConcurGov, MoveLINQ and National Finance
Center systems. The Integrated Financial System
provides the IRS with comprehensive automated
functionality that supports financial and administrative program management. The software
provides automated functionality for significant
administrative business processes, including core
financials, procurement, intragovernmental
transactions, purchase card activities and budget
formulation and execution. The Integrated
Financial System also provides robust cumulative
reporting capabilities by merging data from all
sub-systems in Business Warehouse.
During FY 2023, IRS implemented several system
improvements including:
• New database modernizing data analytics
for revenue financial data.
• Government Invoicing functionalities in the
Integrated Financial System.
• SAP and Business Warehouse software
upgrades.
• System-wide legislative, technical and
cybersecurity upgrades.
The IRS will build upon successes of FY 2023 with
the vision that fully articulates the goals and
objectives of the SOP. The IRS is committed to
developing its employees by providing resources,
tools and training that will help meet the needs of
today and tomorrow and continuing to build its
workforce using data-driven planning to strategically understand future workforce needs. It is
important for the IRS to foster continued partnerships and build new ones with those who are
essential contributors in improving the taxpayer
experience. The IRS will continue to expand its
network for better information sharing and
improved service delivery.
45
Management's Discussion and Analysis
Within the next five years, the IRS plans to continue to enhance financial management systems including:
• Implementing the remaining segments of the Government Invoicing functionality.
• Expanding data analytics across financial systems.
• Building core systemic functionality to support financial accounting program changes related to
the IRA and the Creating Helpful Incentives to Produce Semiconductors Act of 2022.
• Enhancing the Integrated Financial System functional capability platform with technical
upgrades, including migrating to the SAP NS2 Cloud (HANA) in FY 2024, and continuing to plan
and implement the multi-year initiative to upgrade the Integrated Financial System functional
software to SAP S/4.
Other Laws
The IRS is required to comply with several legal and regulatory requirements, including the Antideficiency Act. The Management Controls 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 Antideficiency Act.
46
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
MANAGEMENT ASSURANCES
Commissioner's Statement of Assurance
The IRS’s management is responsible for managing risks and maintaining effective internal control and
financial management systems to meet the objectives of the Federal Managers’ Financial Integrity Act
of 1982. We conducted our assessment of risk and internal controls in accordance with the Office of
Management and Budget Circular A-123, Management’s Responsibility for Enterprise Risk
Management and Internal Control.
Based on our assessment, we can provide reasonable assurance that, in accordance with Section 2 of
the Federal Managers’ Financial Integrity Act of 1982, the IRS’s internal control over operations,
reporting and compliance with laws and regulations were operating effectively as of September 30,
2023. This includes the effective operation of internal control over financial reporting which was
considered as part of our assessment.
In addition, we can provide reasonable assurance that, as of September 30, 2023, the IRS was in
compliance with the Federal Financial Management Improvement Act of 1996, Section 803(a) federal
accounting standards and the U.S. Standard General Ledger at the transaction level. However, we are
not in compliance with federal financial management systems requirements because of the two significant deficiencies related to unpaid assessments and information system controls. Therefore, we are in
substantial conformance with Section 4 of the Federal Managers’ Financial Integrity Act, with the
exception of the federal financial management systems requirement discussed above.
As a result of these significant deficiencies, our financial management systems are not in substantial
compliance with the Federal Financial Management Improvement Act of 1996 as of September 30, 2023.
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
systems requirements. Additional information on the deficiencies can be found in Other Information:
Section A: Summary of Financial Statement Audit and Management Assurances, of this report.
Daniel I. Werfel
Commissioner of Internal Revenue
November 3, 2023
IRS FY 2023 | AGENCY FINANCIAL REPORT
47
Management's Discussion and Analysis
IRS Management’s Report on Internal Control over Financial
Reporting Fiscal Year 2023
November 3, 2023
The IRS’s internal control over financial reporting is a process effected by those charged with governance, management and other personnel. The objectives of this process 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.
IRS management is responsible for designing, implementing and maintaining effective internal control
over financial reporting relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error. IRS management evaluated the effectiveness of the IRS's internal control over financial reporting as of September 30, 2023, based on the
criteria established under 31 U.S. Code 3512(c) and (d) (commonly known as the Federal Managers'
Financial Integrity Act).
Based on that evaluation, we conclude that as of September 30, 2023, the IRS’s internal control over
financial reporting was effective. The IRS has two significant deficiencies in its internal control over
financial reporting, for unpaid assessments and information system controls, which we are actively
addressing.
Daniel I. Werfel
Commissioner of
Internal Revenue
48
Jeffrey J. Tribiano
Deputy Commissioner,
Operations Support
Teresa R. Hunter
Chief Financial Officer
IRS FY 2023 | AGENCY FINANCIAL REPORT
Management's Discussion and Analysis
FORWARD-LOOKING INFORMATION
The information in this report reflects not only the
work the IRS has done to serve taxpayers over the
past year but also the challenges the IRS faces and
the vision for continuing to improve in the future.
The IRS will continue a customer-focused
approach that dedicates more resources to helping
taxpayers file correctly the first time, while
addressing issues in the simplest ways appropriate. Noncompliance will be addressed by using
data analytics to expand enforcement in certain
segments. The IRS will modernize how it attracts,
retains, develops and empowers its employees
and become an employer of choice across the
government and industry. These changes will
enable the IRS to serve all taxpayers more
equitably and in ways they want to be served.
The IRS is focused on helping taxpayers get it
right the first time—claiming the credits and
deductions they are eligible for and avoiding
back-and-forth with the IRS when errors arise. To
help taxpayers get it right, the IRS will continue
working toward taxpayers being able to
seamlessly interact with the IRS in the ways that
work best for them whether it is on the phone,
in-person or online. The IRS will expand in-person
service and meet taxpayers where they are,
particularly those in underserved and rural
communities. The IRS will continue to expand
Taxpayer Assistance Centers across the country,
while also starting a special series of events to
help taxpayers living in areas far from the IRS's
in-person offices.
To make this strategic vision a reality, and to
deliver on the commitments in the SOP, the IRS’s
Transformation and Strategy Office is responsible
for coordinating collaboration across the organization and engaging in disciplined and transparent accountability processes. The Transformation and Strategy Office also supports IRS
leadership by providing and maintaining a clear
and effective governance and accountability
structure; facilitating real-time, transparent enterprise prioritization, performance monitoring and
risk management; leading organization-wide
capacity building and change management;
supporting detailed execution-planning and
project management; and enhancing the IRS’s
culture and operations. These efforts are led by
the Chief Transformation and Strategy Officer and
coordinated through an advisory committee to
facilitate informed decision-making by the
Commissioner on issues related to strategic
alignment and problem-solving.
To support the agency’s compliance work, the IRS
has announced new compliance initiatives as part
of a historic effort to restore fairness in tax
compliance by shifting more attention on highincome earners, partnerships, large corporations
and promoters abusing the nation's tax laws.
IRS FY 2023 | AGENCY FINANCIAL REPORT
The IRS has identified partnerships with over
$10 million in assets having ongoing discrepancies between their prior year-ending and
current year beginning balance sheets, which is
an indicator of potential noncompliance. The IRS
will focus on high-risk large partnerships to
quickly address any balance sheet discrepancies.
Beginning in early FY 2024, the IRS will send
correspondence to an initial set of partnerships
and, depending on the responses, the IRS may
add these to the audit stream for additional work.
49
Management's Discussion and Analysis
The IRS’s Large Partnership Compliance program
includes examinations of some of the largest and
most complex partnership returns in the filing
population. In FY 2024, the IRS will expand its
Large Partnership Compliance program to
additional large partnerships, applying cuttingedge machine learning technology to identify
potential compliance risk in the areas of
partnership tax; general income tax and
accounting; and international tax in a taxpayer
segment that historically has been subject to
limited examination coverage. The IRS will open
examinations of 75 of the largest partnerships in
the U.S. that represent a cross section of industries including hedge funds, real estate investment
partnerships, publicly traded partnerships, large
law firms and other industries. On average, these
partnerships each have more than $10 billion in
assets.
The IRS Virtual Currency Compliance Campaign
will continue in the months ahead after an initial
review showed the potential for a 75% noncompliance rate among taxpayers identified through
record production from digital currency
exchanges. The IRS projects more digital asset
cases will be developed for further compliance
work early in FY 2024.
Construction contractors are making Form
1099-MISC/1099-NEC payments to subcontractors who are a "shell" company that have no
legitimate business relationship with the contractor.
Monies paid to “shell” companies are being
returned to the original contractor. The IRS will be
expanding attention in this area with both civil
audits and criminal investigations. Work in this area
is critical to improve compliance, and it will also
help level the playing field for contractors who play
by the rules as well as ensure proper employment
tax withholding for vulnerable workers.
The five objectives outlined in the SOP will be
achieved through the completion of a set of
initiatives as presented under the IRS Strategic
Framework section. These objectives and initiatives comprise over 450 projects to be delivered
over the life of the SOP. Of these projects, 110
projects are in execution, 144 projects have
planning underway and 196 are initiating planning.
Prioritization and sequencing of these projects are
also currently underway. As this is a multi-year
effort, there will be a significant need for
management and functional support, such as
hiring and procurement capacity, as well as
sustained base discretionary funding required to
continue delivering improved service while driving
transformation efforts.
High-income taxpayers from all segments
continue to utilize foreign bank accounts to avoid
disclosure and related taxes. A taxpayer with a
financial interest over a foreign financial account
is required to file a Report of Foreign Bank and
Financial Accounts if the aggregate value of all
foreign financial accounts is more than $10,000 at
any time. IRS analysis of multi-year filing patterns
has identified hundreds of possible Report of
Foreign Bank and Financial Accounts non-filers
with account balances that average over
$1.4 million. The IRS plans to audit the most
egregious potential Report of Foreign Bank and
Financial Accounts non-filer cases in FY 2024.
50
IRS FY 2023 | AGENCY FINANCIAL REPORT
FINANCIAL
INFORMATION
IRS FY 2023 | AGENCY FINANCIAL REPORT
51
Financial Information
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
I am pleased to join Commissioner Werfel in presenting the IRS’s
Agency Financial Report. The IRS upholds an unwavering
commitment to fiscal integrity and robust financial management.
The report serves as a pivotal platform through which we can
exhibit our efficient and effective stewardship of taxpayer dollars in
pursuit of our mission. In support of the IRS’s mission, financial
management operations oversaw about $4.7 trillion in tax
collections, $659 billion in tax refunds and outlays and $574 billion
in unpaid assessments.
We are proud to announce that for the 24th consecutive year, the
IRS has received an unmodified opinion on its financial statements. Furthermore, our external
auditors have provided an unmodified opinion on the overall effectiveness of our internal
controls over financial reporting. Our professionals continue to make progress in resolving the
two significant deficiencies and one noncompliance instance identified in prior years related to
internal controls over unpaid assessments, information system controls and federal financial
management systems requirements. The efforts to remediate the identified deficiencies
demonstrate our commitment to continuous improvement and fiduciary responsibility. This
unmodified opinion validates those efforts.
The CFO's office plays an integral role in shaping the IRS’s strategic direction by leading the
development of strategy and budget plans. This includes our significant contribution to the
justification for funding included in the IRA legislation. Funding received from the IRA enabled
the IRS to continue dramatic improvement on behalf of taxpayers and has further empowered
us to bolster crucial resources within our tax enforcement, taxpayer service, and technology
divisions as outlined in the SOP.
52
IRS FY 2023 | AGENCY FINANCIAL REPORT
Financial Information
We take pride in innovating our business processes to enhance efficiency, accuracy, data
analytics and on-demand reporting to support critical decision-making and develop a more
agile CFO organization. In FY 2023, the IRS became one of the first federal government entities
to successfully implement both buyer and seller functions of Government Invoicing. CFO has
streamlined operations through the implementation of several key initiatives including the
development of interactive dashboards and data visualizations; introducing robotic process
automations across the organization, particularly in audit sampling, data retrieval and
validation; and continuing to foster a culture of creativity among our employees, encouraging
them to explore innovative ways of leveraging those new technologies.
This year’s unmodified audit opinions – along with IRS’s first-ever Certificate of Excellence in
Accountability Reporting awards for last fiscal year – show the IRS’s commitment to
accountability, continuous improvement and sound financial management. I want to thank the
entire CFO staff for their continued dedication to public service, for their innovative ideas and
dedication to the IRS. I am proud of the organizational and process changes we have
implemented in FY 2023 and look forward to continued successes – such as migrating our
financial accounting system to the cloud – in the coming year.
Sincerely,
Teresa R. Hunter
Chief Financial Officer
November 3, 2023
IRS FY 2023 | AGENCY FINANCIAL REPORT
53
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 2023 and 2022 financial statements of the Internal Revenue
Service (IRS), we found
•
IRS’s financial statements as of and for the fiscal years ended September 30, 2023, and
2022, 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, 2023; and
•
no reportable noncompliance for fiscal year 2023 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 an emphasis-of-matter—federal taxes
receivable, 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
Opinion on the Financial Statements
In connection with fulfilling our requirement to audit the consolidated financial statements of the
U.S. government, and consistent with our authority to audit statements and schedules prepared
by executive agency components, 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. 3 IRS’s financial statements comprise the balance sheets as of September 30,
2023, and 2022; 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. In our opinion, IRS’s financial statements present fairly, in all material
respects, IRS’s financial position as of September 30, 2023, and 2022, and its net cost of
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.
3See 31 U.S.C. §§ 331(e)(2), 3515, 3521(g), (i). Pursuant to the authority of 31 U.S.C. § 3515, the Office of
Management and Budget (OMB) requires IRS to issue annual audited financial statements that are separate from
those of the Department of the Treasury or that are presented separately in the department’s audited, consolidated
financial statements. See Office of Management and Budget, Audit Requirements for Federal Financial Statements,
OMB Bulletin 24-01, app. B (Oct. 19, 2023).
54
IRS FY 2023 | AGENCY FINANCIAL REPORT
Financial Information
Independent Auditor's Report, page 2
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.
Opinion on Internal Control over Financial Reporting
We also have audited IRS’s internal control over financial reporting as of September 30, 2023,
based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal
Managers’ Financial Integrity Act of 1982 (FMFIA). 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, 2023, based on criteria established under FMFIA.
Our fiscal year 2023 audit continued to identify significant deficiencies in internal control over
financial reporting concerning IRS’s unpaid assessments and information system controls. 4 We
considered these significant deficiencies in determining the nature, timing, and extent of our
audit procedures on IRS’s fiscal year 2023 financial statements.
Although the significant deficiencies in internal control did not affect our opinion on IRS’s fiscal
year 2023 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 information system controls that existed during fiscal year 2023, 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. 5
We will be reporting additional details concerning the significant deficiency in information system
controls separately to IRS management, along with recommendations for corrective actions. In
addition to the significant deficiencies in internal controls over unpaid assessments and
information system controls, 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.
4An 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 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. A 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 significant deficiency is a deficiency, or a combination of deficiencies, in
internal control over financial reporting that is less severe than a material weakness, yet important enough to merit
attention by those charged with governance.
5Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA), which is reprinted in 31
U.S.C. § 3512 note, requires that certain federal agencies, including Treasury, 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. While
IRS’s financial management systems did not comply substantially with federal financial management systems
requirements, IRS’s financial management systems did comply substantially with federal accounting standards and
the U.S. Government Standard General Ledger at the transaction level. As a Treasury component, IRS is not
required to be assessed separately; however, it is included in Treasury’s agency-wide FFMIA assessment. Since IRS
is a significant component of Treasury, we conducted this assessment to support the audit of the Treasury agencywide financial statements. See Office of Management and Budget, Management of Financial Management Systems –
Risk and Compliance, OMB Circular No. A-123, app. D, § VII.A (Dec. 23, 2022).
IRS FY 2023 | AGENCY FINANCIAL REPORT
55
Financial Information
Independent Auditor's Report, page 3
Significant Deficiency in Internal Controls over Unpaid Assessments
During fiscal year 2023, 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. 6
As in prior years, 7 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. 8
During fiscal year 2023, IRS recorded adjustments totaling about $18.4 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 daily 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, 2023. Continued
management commitment and sustained efforts are necessary to build on the progress made to
date and to fully address IRS’s remaining unresolved issues concerning the management and
reporting of unpaid assessments.
Significant Deficiency in Information System Controls
During our fiscal year 2023 audit, we determined that unresolved information system control
deficiencies from prior audits along with new control deficiencies collectively represent a
significant deficiency in IRS’s internal control over financial reporting. These control deficiencies
relate to information system general controls in the areas of security management, access
6Federal 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 that 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 that IRS report only
federal taxes receivable, net of an allowance for uncollectible taxes receivable, 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 17, 2023).
7See GAO, Financial Audit: IRS's FY 2022 and FY 2021 Financial Statements, GAO-23-105564
GAO-23-105564 (Washington, D.C.:
Nov. 10, 2022).
8In fiscal year 2023, IRS’s reported federal taxes receivable consisted of a combination of two distinct types of taxes
receivable with different internal control and accounting processes in place: amounts derived from (1) IRS’s unpaid
assessments statistical estimation process and (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, 2195-2208 (Dec. 22, 2017), which is
codified at 26 U.S.C. § 965.
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Independent Auditor's Report, page 4
controls, and configuration management. 9 The new and continuing control deficiencies include
the timely creation of plans of action and milestones to address identified vulnerabilities or
weaknesses, use of multifactor authentication, encryption of sensitive data, logging and
monitoring of audit records, and management of configuration settings for certain platforms.
Such control deficiencies, as well as others that constitute the significant deficiency, increase
the risk of unauthorized access to, modification of, and disclosure of sensitive data and
programs, as well as the disruption of critical operations.
IRS mitigated the potential effect of these control deficiencies primarily through compensating
controls that management has designed to detect potential misstatements on the financial
statements. Additionally, over the past several years, IRS management has increased its focus
on completing the corrective actions necessary to address many of the information system
control deficiencies that make up the significant deficiency. This has resulted in the closure of
numerous system-specific recommendations. During fiscal year 2023, we found that IRS
successfully completed corrective actions sufficient to address multiple system-specific
recommendations involving the use of multifactor authentication and the encryption of sensitive
information.
However, while IRS management has demonstrated its commitment to addressing the
significant deficiency in information system controls, additional efforts are needed to fully
address the remaining unresolved control deficiencies that constitute the significant deficiency.
It will be important for IRS management to build on the progress made and to sustain focus on
improving the agency’s information system controls.
Basis for Opinions
We conducted our audits in accordance with U.S. generally accepted government auditing
standards. Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audits of the Financial Statements and Internal Control over Financial
Reporting section of our report. We are required to be independent of IRS and to meet our other
ethical responsibilities, in accordance with the relevant ethical requirements relating to our
audits. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinions.
Emphasis-of-Matter: Federal Taxes Receivable
This matter deserves emphasis to put the information in IRS’s financial statements into context.
As discussed in note 1.E., 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 IRS. Consistent with federal accounting standards, IRS’s
9General controls are the policies and procedures that apply to all or a large segment of an entity’s information
systems and help ensure their proper operation. General controls are applied at the entity-wide, system, and
business process application levels. The effectiveness of general controls is a significant factor in determining the
effectiveness of business process application controls. Security management provides a framework and continuing
cycle of activity for managing risk, developing security policies, assigning responsibilities, and monitoring the
adequacy of the entity’s computer-related controls. Access controls limit or detect access to computer resources,
such as data, programs, equipment, and facilities, thereby protecting them against unauthorized modification, loss,
and disclosure. Configuration management prevents unauthorized changes to information system resources, such as
software programs and hardware configurations, and provides reasonable assurance that systems are configured
and operating securely and as intended.
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Independent Auditor's Report, page 5
financial statements do not include an estimate for the annual tax gap—the difference between
the amount of tax that taxpayers owe and the amount they actually pay voluntarily and on
time, 10 nor do they include information on tax expenditures. 11 Further detail on the tax gap and
tax expenditures, as well as the associated dollar amounts, is provided in the unaudited other
information included with the financial statements. Our opinion on IRS’s financial statements is
not modified with respect to this matter.
Responsibilities of Management for the Financial Statements and Internal Control over Financial
Reporting
Management is responsible for
•
the preparation and fair presentation of the financial statements in accordance with U.S.
generally accepted accounting principles;
•
preparing, measuring, and presenting the RSI in accordance with U.S. generally accepted
accounting principles;
•
preparing and presenting other information included in IRS’s financial report, and ensuring
the consistency of that information with the audited financial statements and the RSI;
•
designing, implementing, and maintaining effective internal control over financial reporting
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error;
•
assessing the effectiveness of internal control over financial reporting based on the criteria
established under FMFIA; and
•
its assessment about the effectiveness of internal control over financial reporting as of
September 30, 2023, included in the accompanying Management’s Report on Internal
Control over Financial Reporting on page 48.
Auditor’s Responsibilities for the Audits of the Financial Statements and Internal Control over
Financial Reporting
Our objectives are to (1) obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and whether
10The 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). In October 2022, IRS released its most recent tax gap estimates, which covered tax
years 2014–2016. Using results from audits of returns filed in these years and additional analyses, IRS estimated the
average annual gross tax gap to be $496 billion for those years. IRS also estimated that $68 billion would be
collected through enforcement actions or late payments, leaving a net tax gap of $428 billion. In October 2023, IRS
released tax gap projections for tax years 2020 and 2021. The tax gap projections are available for more recent years
than the tax gap estimates, but the tax gap projections assume that compliance rates found in the 2014–2016 audits
are unchanged in 2020 and 2021. The projected gross tax gap increased to $688 billion in tax year 2021. IRS also
projected that $63 billion would be collected through enforcement actions or late payments, leaving a projected net
tax gap of $625 billion.
11Tax 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.
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effective internal control over financial reporting was maintained in all material respects, and (2)
issue an auditor’s report that includes our opinions.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore
is not a guarantee that an audit of the financial statements or an audit of internal control over
financial reporting conducted in accordance with U.S. generally accepted government auditing
standards will always detect a material misstatement or a material weakness when it exists. The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control. Misstatements, including omissions, are considered to be
material if there is a substantial likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the financial statements.
In performing an audit of financial statements and an audit of internal control over financial
reporting in accordance with U.S. generally accepted government auditing standards, we:
•
Exercise professional judgment and maintain professional skepticism throughout the audits.
•
Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements.
•
Obtain an understanding of internal control relevant to our audit of the financial statements
in order to design audit procedures that are appropriate in the circumstances.
•
Obtain an understanding of internal control relevant to our audit of internal control over
financial reporting, assess the risks that a material weakness exists, and test and evaluate
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. 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.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements.
•
Perform other procedures we consider necessary in the circumstances.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain internal
control-related matters that we identified during the financial statement audit.
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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 internal control over financial
reporting are to provide reasonable assurance that
•
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
•
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.
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. Such information is the responsibility of management and, although not a part of the
financial statements, is required by FASAB, which considers it 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. These procedures consisted of (1) inquiring of
management about the methods used to prepare the RSI and (2) comparing the RSI for
consistency with management’s responses to our 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. Management is
responsible for the other information included in IRS’s financial report. The other information
comprises the following sections of the IRS Fiscal Year 2023 Agency Financial Report:
Introduction, Message from the Chief Financial Officer, Other Information, and Appendices.
Other information does not include the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information, and we do not
express an opinion or any form of assurance thereon.
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Independent Auditor's Report, page 8
In connection with our audit of the financial statements, our responsibility is to read the other
information and consider whether a material inconsistency exists between the other information
and the financial statements, or the other information otherwise appears to be materially
misstated. If, based on the work performed, we conclude that an uncorrected material
misstatement of the other information exists, we are required to describe it in our report.
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 responsibilities discussed below.
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 2023 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.
Basis for Results of Our Tests for Compliance with Laws, Regulations, Contracts, and Grant
Agreements
We performed our tests of compliance in accordance with U.S. generally accepted government
auditing standards.
Responsibilities of Management for Compliance with Laws, Regulations, Contracts, and Grant
Agreements
IRS management is responsible for complying with laws, regulations, contracts, and grant
agreements applicable to IRS.
Auditor’s Responsibilities for Tests of Compliance with Laws, Regulations, Contracts, and Grant
Agreements
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 provisions of laws,
regulations, contracts, and grant agreements applicable to IRS. We caution that noncompliance
may occur and not be detected by these tests.
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.
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Independent Auditor's Report, page 9
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 in reducing the open
recommendations. 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 3, 2023
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ENCLOSURE: IRS RESPONSE TO THE INDEPENDENT AUDITOR'S
REPORT
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IRS FY 2023 | AGENCY FINANCIAL REPORT
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FINANCIAL STATEMENTS
The 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 (Public Law 103-356) and the Office of Management
and Budget 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 financial statements was performed by the Government Accountability Office.
The IRS financial statements for FY 2023 and FY 2022 are described below:
• The Balance Sheets present the assets, liabilities and net position.
• The Statements of Net Cost present the gross costs incurred less exchange revenue earned
from activities and the net cost of operations. The presentation aligns with the objectives as
defined in the SOP.
• The Statements of Changes in Net Position present the change in net position resulting from the
net cost of operations, budgetary financing sources other than exchange revenues and other
financing sources.
• The Statements of Budgetary Resources present 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 Statements of Custodial Activity present the sources of non-exchange federal tax revenues
collected and disposition of refunds and outlays disbursed.
IRS FY 2023 | AGENCY FINANCIAL REPORT
65
Financial Information
Balance Sheets
As of September 30, 2023 and 2022
(in Millions)
2023
2022
ASSETS
Intragovernmental
Fund Balance with Treasury (Notes 2, 3)
$
86,347
23
3
$
87,389
Accounts Receivable, Net
Advances and Prepayments
Other Assets
Due from the General Fund of the U.S. Government (Note 2)
39
1
6,647
6,947
Total Intragovernmental
93,020
94,376
With the Public
Cash and Other Monetary Assets (Note 4)
Accounts Receivable, Net
Federal Taxes Receivable, Net (Notes 2, 5, 8)
Other Receivables, Net
Property and Equipment, Net (Note 6)
Advances and Prepayments
4
4
182,000
6
1,747
15
236,000
6
1,795
9
Total with the Public
183,772
237,814
$ 276,792
$ 332,190
$185,382
251
$238,407
217
Total Assets
LIABILITIES
Intragovernmental
Other Liabilities
Due to the General Fund of the U.S. Government (Note 8)
Other Liabilities (Note 10)
Total Intragovernmental
185,633
238,624
With the Public
Accounts Payable
Federal Tax Refunds Payable
Other Payables
Federal Employee Benefits Payable (Note 9)
Other Liabilities (Note 10)
6,648
14
1,009
4,354
6,947
15
1,003
2,220
Total with the Public
12,025
10,185
Total Liabilities
197,658
248,809
Funds from Other Than Dedicated Collections
77,569
82,049
Cumulative Results of Operations
Funds from Dedicated Collections (Note 13)
Funds from Other Than Dedicated Collections
294
1,271
181
1,151
Total Cumulative Results of Operations
1,565
1,332
Total Net Position
79,134
83,381
$ 276,792
$ 332,190
Commitments and Contingencies (Note 12)
NET POSITION
Unexpended Appropriations
Total Liabilities and Net Position
The accompanying notes are an integral part of these statements.
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IRS FY 2023 | AGENCY FINANCIAL REPORT
Financial Information
Statements of Net Cost
For the Years Ended September 30, 2023 and 2022
(in Millions)
2023
2022
$5,949
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