IRS FY 2022 AGENCY FINANCIAL REPORT
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FISCAL YEAR
2022
AGENCY
FINANCIAL
REPORT
IRS FY 2022 AGENCY FINANCIAL REPORT
A
Cover/InsIde Cover
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B
IRS FY 2022 AGENCY FINANCIAL REPORT
ABout thIs report
ABOUT THIS REPORT
this Agency Financial report (AFr) presents the Internal revenue service’s (Irs) financial information
in relation to its mission and resources entrusted to it for the Fiscal Year (FY) 2022 (october 1, 2021,
to september 30, 2022) reporting period. It also highlights select accomplishments and challenges in
implementing programs that promote the Irs’s mission. Although the Irs is a bureau within the united
states (u.s.) department of the treasury (treasury), this report is titled AFr to be consistent with
similar reports in the federal government.
the Irs presents this report in accordance with office of Management and Budget’s (oMB) 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/budget-documents-and-other-resources.
HOW THIS REPORT IS ORGANIZED
the AFr consists of the following sections:
Section 1: Management’s Discussion and Analysis
supplies a high-level overview of the Irs’s history, mission and organizational structure, strategic
framework, programmatic performance, enterprise risks, forward-looking information, systems,
controls and legal compliance, management assurances related to the Irs’s internal controls and an
overview of the Irs financial statements. More information about the Irs’s FY 2022 programs and
performance will be available in the Internal revenue service progress update for FY 2022 in January
2023 (the current version is available on www.irs.gov/pub/irs-pdf/p5382.pdf).
Section 2: Financial Information
Includes a message from the Chief Financial officer (CFo), audited financial statements,
accompanying notes, required supplementary information and the Independent Auditor’s report.
Section 3: Other Information (Unaudited)
Contains a summary of the financial statement audit and management assurances, management
and performance challenges named by the treasury Inspector General for tax Administration (tIGtA)
and the Irs management’s response thereto, refundable tax Credits and other tax outlays, Grant
programs and an acronym list. treasury reports on payment Integrity and Climate–related Financial
risk in its AFR (home.treasury.gov/about/budget-financial-reporting-planning-and-performance/
agency-financial-report). For payment Integrity, also see www.paymentaccuracy.gov.
IRS FY 2022 AGENCY FINANCIAL REPORT
i
tABle oF Contents
TABLE OF CONTENTS
About This Report
i
Message from the Commissioner
iii
MANAGEMENT'S DISCUSSION AND ANALYSIS
. . . . . . . . . . . 1
About the IRS
2
History
2
Mission and Organization
3
FY 2022–2026 Strategic Framework
4
Performance Overview
5
Enterprise Risk Management
20
Analysis of Financial Statements
22
Analysis of Systems, Control and Legal Compliance
32
Management Assurances
36
Forward-Looking Information
37
FINANCIAL SECTION
39
. . . . . . . . . . . . . . . . . . . . .
Message from the Chief Financial Officer
41
Independent Auditor's Report
42
Enclosure: IRS Response to the Independent Auditor's Report
50
Financial Statements
51
Notes to the Financial Statements
58
Required Supplementary Information
85
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .
89
Section A: Summary of Financial Statement Audit and Management Assurances
90
Section B: Management Challenges and IRS Response
92
Section C: Refundable Tax Credits and Other Outlays
111
Section D: Grants Programs
123
Section E: Acronym List
124
ii
IRS FY 2022 AGENCY FINANCIAL REPORT
MessAGe FroM the CoMMIssIoner
MESSAGE FROM THE COMMISSIONER
I am pleased to present the Internal revenue service Agency Financial
report for FY 2022. 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.
the Irs strategic plan FY 2022–2026, comprising four goals (service,
enforcement, people and transformation), enables us to meet the changing
needs and expectations of the nation's taxpayers and tax professionals.
these goals reflect a long-standing principle of putting the interests of our
taxpayers first in everything we do, and it is what drives us in our mission to
provide high-quality services and fairly and impartially enforce the law. our goals and objectives also support
treasury’s strategic plan and governmentwide priorities.
In FY 2022, we carried out our tax administration work while also continuing to implement tax changes
enacted by Congress. the hard work of our dedicated employees made it possible for the Irs to collect
over $4.9 trillion in gross revenues, which is nearly all of the funding that supports the federal government’s
operations from the roads we drive on, national parks, space exploration, air traffic controls, support for our
military and so much more.
Irs employees have always gone above and beyond to sustain our operations during challenging times and
the pandemic was no exception. despite our best efforts, pandemic-related issues caused record levels of
activity that continue to affect our operations. We experienced unprecedented amounts of paper returns
and correspondence that contributed to an extraordinary higher level of call volumes and related taxpayer
inquiries. however, taxpayer service remains the most significant Irs priority, and we have implemented
many new strategies in an effort to improve our overall level of service and processing of returns. to address
the inventory, we have taken actions that include implementing surge teams, mandatory overtime, giving
taxpayers increased access to online self-service tools, innovating to expedite case closures and suspending
various notices.
A key focus of our work in FY 2022 and one of my priorities as Commissioner has been enhancing the
taxpayer experience for all taxpayers including people in diverse and underserved communities. Building
upon our efforts last year, we further improved the assistance provided to taxpayers in multiple languages,
such as releasing Form 1040 in spanish for the first time and giving taxpayers the opportunity to use a new
schedule lep (limited english proficiency) to indicate their preferred contact language instead of english.
We completed the conversion of 34 spanish notice inserts to Braille, text, audio and large print, and also
converted Form 1040 and its main schedules into spanish Braille, text and large print. We have done the
same for Forms 1040 nr, 1040 sr, W-4 and six Irs publications. We are committed to finding new ways to
serve taxpayers and improve the tax system. It is critically important that everyone who interacts with us have
a positive, supportive and seamless experience.
IRS FY 2022 AGENCY FINANCIAL REPORT
iii
MessAGe FroM the CoMMIssIoner
MESSAGE FROM THE COMMISSIONER
during FY 2022, the Irs continued to develop and utilize innovative approaches to understand, detect and
resolve potential noncompliance to maintain taxpayer confidence in the tax system. the comprehensive,
coordinated enforcement strategy we have been developing to address abusive syndicated conservation
easement transactions* has shown success, and we have worked closely with the u.s. department of
Justice to shut down the promotion of them. Another great example involves our aggressive challenges of
micro-captive transactions* in court. We have also seen success in our investigations of criminal activity
related to CovId relief efforts, including fraudulently obtained loans, credits and payments meant for
American workers, families and small businesses.
In addition to these successes in FY 2022, I am pleased to report that the Irs maintained an unmodified
(clean) financial statement audit opinion for the 23rd consecutive year. Based upon the results of our internal
control evaluations, I can provide reasonable assurance that the performance and financial information in this
report is complete and accurate. We continue to strengthen management controls and make progress toward
remediating the significant deficiencies in internal control over financial reporting in meeting all u.s. financial
systems compliance and conformance objectives as outlined in the Management’s discussion and Analysis –
Analysis of systems, Control and legal Compliance.
the truly transformational investment in the recently passed Inflation reduction Act of 2022 (IrA) provides
nearly $80 billion to the Irs through FY 2031 for increased enforcement, investments in information
technology modernization and improvements to taxpayer services.
our taxpayer experience office, established last year, is setting the strategic direction for improving the
taxpayer experience and identifying opportunities to make continuous improvements in real time for taxpayers
and tax professionals. the improvements we have already made and will continue to make over the next few
years will produce abundant benefits for our agency, taxpayers and the tax system well into the future.
All of these efforts will strengthen our agency and lead to an Irs that is in a better position to help taxpayers
and serve the needs of our great nation. the Irs’s dedicated workforce will continue striving to make a
positive difference for taxpayers by enhancing the taxpayer experience and ensuring fair enforcement of the
tax laws.
sincerely,
Charles p. rettig
Commissioner of Internal revenue
november 7, 2022
https://www.irs.gov/newsroom/irs-wraps-up-2022-dirty-dozen-scams-list-agency-urges-taxpayers-to-watch-out-for-tax-avoidance-strategies
*
iv
IRS FY 2022 AGENCY FINANCIAL REPORT
THE IRS IS MORE THAN A TAX
ADMINISTRATION AGENCY THE SUCCESS
OF OUR NATION IS CLOSELY TIED TO THE
SUCCESS OF THE IRS "
– Chuck Rettig, IRS Commissioner
MANAGEMENT'S
DISCUSSION AND ANALYSIS
IRS FY 2022 AGENCY FINANCIAL REPORT
1
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 (IrC) section 7801. the secretary has full authority to
administer and enforce the internal revenue laws and has the power to create an agency to enforce
these laws.
IrC section 7803 provides for the appointment of a Commissioner of Internal revenue to administer
and supervise the execution and application of the internal revenue laws.
the Irs is one of the world’s largest tax administrators. In FY 2022, the Irs collected more than
$4.9 trillion in taxes, which represents nearly all the revenue that supports the federal government’s
operations.
Some key tax statistics in FY 2022 include:
260M
$4.9T
$1,838
$72.4B
Federal Tax
Returns and Forms
Processed
Collected in Gross
Taxes
Average Individual
Refund
Enforcement
Revenue Collected
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 2022 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 and enforce 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.
FORCING
EN
AX
TA
TA
S
SISTING
AS
T
TA X E S
OCESSING
PR
RETUR
N
X PA Y E R S
X LAWS
STIGATIN
VE
TA
G
LLECTING
CO
IN
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.
X C RIM ES
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 (W&I), small Business/self-employed (sB/se), large Business and International (lB&I) and
tax exempt and Government entities (te/Ge). Additionally, the Irs has other functional organizations
that have direct interaction with taxpayers and tax preparers, as well as an operations support
structure that supplies direction and guidance to the Irs’s administrative functions. the current Irs
organization chart is available at: Today's IRS Organization | Internal Revenue Service (www.irs.gov/
pub/newsroom/marketing/internet/irs-organization-chart.pdf).
IRS FY 2022 AGENCY FINANCIAL REPORT
3
MAnAGeMent's dIsCussIon And AnAlYsIs
FY 2022–2026 STRATEGIC FRAMEWORK
the IRS Strategic Plan FY 2022–2026 (www.irs.gov/about-irs/irs-strategic-plan) comprises four
goals which align to specific objectives that serve as a roadmap to guide Irs operations and to
meet the changing needs and expectations of the nation's taxpayers and tax professionals. each
Irs organization aligns its programs and performance within this framework. It supports key
governmentwide 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.
As treasury’s largest bureau, the Irs plays a critical role in advancing Treasury’s Strategic Plan 2022–
2026 (home.treasury.gov/system/files/266/treasurystrategicplan-FY2022-2026.pdf) by co-leading the
“tax policy and Administration” strategic objective and supporting eight other objectives across all five
treasury goals. the Irs regularly reports on progress toward these shared priorities and contributes to
several of the Cross-Agency priority Goals and treasury's two-year Agency priority Goals.
1 Service
Provide quality and
accessible services to
enhance the taxpayer
experience.
2 Enforcement
Enforce the tax law
fairly and efficiently
to increase voluntary
compliance and
narrow the tax gap.
4 Transformation
Transform IRS operations to
become more resilient, agile
and responsive to improve the
taxpayer experience and narrow
the tax gap.
4
3 People
Foster an inclusive, diverse
and well-equipped workforce
and strengthen relationships
with our external partners.
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
PERFORMANCE OVERVIEW
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 Irs strategic
plan FY 2022–2026 consists of four strategic goals. three of the goals are major programs: service,
enforcement and transformation, and align to the Irs statement of net Cost (snC). the Irs
distributes the costs associated with its strategic Goal 3, people, across the three major programs
that receive the benefits derived from the activities and accomplishments achieved by the people goal.
TABLE 1: IRS STRATEGIC PLAN FY 2022–2026 GOALS AND OBJECTIVES
Goals with Resources Invested
Goal 1:
Service
Total Program Cost:
$7,085 Million
Goals with Resources Invested
Goal 2:
Enforcement
Total Program Cost:
$ 8,441 Million
Goals with resources Invested
Objectives
1.1 Deliver secure and customized services to meet taxpayer needs.
1.2 Identify and address the needs of underserved and multilingual
communities to improve their ability to participate in the tax system.
1.3 Provide proactive outreach and education to improve taxpayer
understanding of their rights, responsibilities, and obligations.
1.4 Safeguard taxpayer data and privacy and protect the IRS against
internal and external threats.
Objectives
2.1 Improve operations to effectively and efficiently identify and address
noncompliance.
2.2 Enhance enforcement efforts to collect unpaid taxes in a fair and
impartial manner.
2.3 Proactively identify current and emerging fraud schemes and other
threats using real-time intelligence and analytics.
objectives
3.1 Recruit, hire and retain a workforce that reflects the communities we
serve to meet current and future needs.
Goal 3:
People*
3.2 Empower our workforce with the proper training, tools and processes
to improve the employee experience and better serve taxpayers.
3.3 Strengthen, expand and effectively utilize our network of trusted
partners to better serve taxpayers and improve compliance.
Goals with Resources Invested
Goal 4:
Transformation
Total Program Cost:
$ 675 Million
Objectives
4.1 Reorganize our operational structure to provide an exceptional taxpayer
experience by increasing collaboration and maximizing efficiencies.
4.2 Modernize technology infrastructure and develop secure and
sustainable solutions to improve tax administration.
4.3 Increase digitalization to streamline processes, improve access to
digital data and lessen our environmental impact.
4.4 Improve data management and application of analytical capabilities to
drive evidence-based decisions.
* The IRS distributes costs associated with the People goal objectives among the IRS's Major Programs/Strategic Goals 1, 2 and 4.
IRS FY 2022 AGENCY FINANCIAL REPORT
5
MAnAGeMent's dIsCussIon And AnAlYsIs
IRS Performance Measurement Reporting Process
the IRS Congressional Budget Justification & Annual Performance Report and Plan (APR&P)
(www.irs.gov/about-irs/budget-documents-and-other-resources), approved by the Irs Commissioner
and deputy Commissioners, includes key performance measures (KpMs), with annual and outyear
targets, and key performance indicators (KpIs), which are tracked a few years before establishing
targets. the Irs uses these key metrics to assess progress in achieving the strategic plan goals
and reports its performance data in the Irs Congressional Budget Justification and Apr&p. the Irs
estimates release of the FY 2024 report in the second quarter of FY 2023.
Summary of FY 2022 Results: the Irs has a total of 28 KpMs and KpIs included in the budget and/
or published in the strategic plan, of which 15 are KpMs with targets and 13 are KpIs. the Irs
exceeded the FY 2022 target for 10 out of 15 KpMs, and 6 out of 8 KpIs met or exceeded last year's
results. results were not available for 5 KpIs; those results will appear in the FY 2024 Irs
Congressional Justification (scheduled for publication in the second quarter of FY 2023). refer to
Verification and Validation of Performance Data for details on the Irs’s performance measurement
reporting and verification and validation processes.
TEGIC PLA
A
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N
ST
FINANCIAL
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6
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PO
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G
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PERFORMANCE
MANAGEMENT
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Major Program | Strategic Goal 1: SERVICE
the Irs is dedicated to providing an excellent taxpayer experience and is committed to helping
taxpayers of all communities participate in the tax system with ease and confidence. to create
proactive, convenient, seamless and effective interactions for taxpayers and stakeholders, the Irs
developed the taxpayer experience strategy roadmap. In FY 2022, the Irs enhanced its web
communications and increased its online digital services, continued its efforts to improve tax products
and services offered to limited-english proficient taxpayers and underserved communities, continued
to provide partners and volunteers with the resources needed to assist taxpayers in meeting their tax
obligations, conducted filing season outreach activities and products and improved data management
and analytics. Moreover, the Irs continued implementing the executive order on improving the nation’s
Cybersecurity to protect Irs systems and retain public trust. during the last two years, the Irs has
experienced unprecedented challenges. the CovId-19 pandemic and resulting emergency closures of
facilities as well as three rounds of pandemic-related relief legislation have affected every aspect of its
operations since spring 2020, particularly the areas of correspondence and tax return inventory. the
Irs is still facing unprecedented inventory levels, which continue to contribute to higher call volumes
and related inquiries. the Irs established an inventory surge team consisting of former customer
service representatives (Csrs), tax examiners, clerks and other employees who had Campus support
experience to help address the inventory, recover from this tremendous challenge and improve the
taxpayer experience. the Irs strives to deepen its understanding of the taxpayer experience, be
responsive to changing needs and continuously enhance taxpayer service by improving access
to phone and face-to-face assistance, reducing paper inventory and expanding online options for
taxpayers to meet their needs. With the funding from the IrA, the Irs plans to increase service on the
phones and in our taxpayer Assistance Centers in the coming months and automate the scanning
of millions of individual paper returns into digital copies. the Irs is hard at work to make it possible
for taxpayers to receive and respond to many notices online. While some changes may take time,
taxpayers will see an immediate improvement during the 2023 tax season.
San Francisco cookie company makes fortune cookies
with IRS Free File tips inside to give to local seniors and
low-income taxpayers
Owner Kevin Chan of the San Francisco
Golden Gate Fortune Cookies Company
recently partnered with the IRS to make 2,000
fortune cookies with IRS Free File messages
inside to give to local seniors and low-income
taxpayers
Branch Chief Christine Footit and Carol Xie,
public affairs specialist (bilingual Chinese),
worked together to come up with the idea
and partner with the cookie company and
community partners on this effort
(continued on page 9)
IRS FY 2022 AGENCY FINANCIAL REPORT
7
MAnAGeMent's dIsCussIon And AnAlYsIs
Service Strategic Goal Results
the Irs exceeded 5 out of 6 of its service KpMs and 3 out of 3 of the KpIs met or exceeded their
prior-year results.
TABLE 2: SUMMARY OF KEY STRATEGIC GOAL RESULTS FOR FY 2018–2022
Strategic Goal Key
Performance Measures/Indicators*
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Actual
FY 2022
Target
FY 2022
Actual
Customer service representative level of
service (los) – B
75.9%
65.4%
53.1%
18.5%
30.0%
17.4%
Not Met
CSR LOS was 17 4% which was 41 9% below plan of 30% IRS reduced the campus phone staffing to a minimal amount to
focus on reducing the paper inventory Phone Demand through September of 81 3 million was 32% lower than the prior year
of 119 9 million The Primary Abandoned Call Rate of 18 2% is 21% lower compared to last year during the same time frame
The IRS will monitor demand in real time and allocate resources down to the half hour enabling the IRS to regularly shift staff
between telephones and paper processing to address demand With the receipt of funding from the IRA, the IRS plans to deliver
a higher LOS in FY 2023
total ending Inventory (Millions)1
(Added in FY 2022) – B
600
1,100
1,100
4,100
no target
2,156
set
99.6%
71.9%
no target
116.4%
set
92.8%
89.0%
92.0%
Met
93.0%
89.0%
91.8%
Met
92.0%
89.0%
96.4%
Met
The total number of accounts management and correspondence inventory
percent of Closures to receipts1
(Added in FY 2022) – B
99.0%
92.7%
The percentage of the number of adjustment cases closed compared to the number received
Customer Accuracy — tax law (phones) – B
95.5%
91.6%
91.0%
The percentage of correct answers given by a live assistor on toll-free tax law inquiries
Customer Accuracy — Accounts (phones) – B
96.1%
94.3%
93.5%
The percentage of correct answers given by a live assistor on toll-free account inquiries
timeliness of Critical Individual Filing season
tax products to the public – B, sp
59.6%
92.6%
78.4%
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
timeliness of Critical te/Ge & Business tax
products to the public – B, sp
100.0%
96.1%
96.0%
92.9%
89.0%
96.0%
Met
The percentage of critical TE/GE and business tax products available to the public seven calendar days before the official IRS
start of the individual filing season
enterprise self-Assistance
participation rate – B, sp
82.0%
85.4%
90.6%
92.3%
91.0%
93.9%
Met
The percentage of taxpayer assistance requests resolved using self-assisted automated services
B = Budget, SP = Strategic Plan, KPI's have no target set.
Historical data provided for comparative purpose.
2
Results not available and are not included in the total KPI count above. Results will appear in the IRS FY 2024 Congressional Budget Justification and APR&P.
*
1
8
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Strategic Goal Key
Performance Measures/Indicators*
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Actual
FY 2022
Target
FY 2022
Actual
74
73
74
70
no target
set
n/A2
taxpayers satisfied with the Irs – B, sp
Taxpayers Satisfied with the IRS is based on the American Customer Satisfaction Index (ACSI) survey The All-Individual Tax Filer
score is calculated from separate ACSI Individual Paper Filer and Electronic Filer Customer Satisfaction Index Scores based on a
100-point scale
enterprise los
(Added in FY 2022) – sp
69.0%
56.2%
51.2%
21.3%
no target
set
21.3%
The success rate of taxpayers calling to speak with an assistor on any toll-free phone line
B = Budget, SP = Strategic Plan, KPI's have no target set.
Historical data provided for comparative purpose.
2
Results not available and are not included in the total KPI count above. Results will appear in the IRS FY 2024 Congressional Budget Justification and APR&P.
*
1
(continued from page 7)
worked together to come up with the idea
and partner with the cookie company and
community partners on this effort
“We came up with the idea to approach them
[the cookie company],” said Christine “They
happily agreed to produce 2,000 individual
wrapped fortune cookies ”
Carol Xie (center) with Communication and Liaison's (C&L's)
Tax Outreach, Partnership & Education branch displays the
fortune cookies with community partners Lily Lo, CEO of
Northeast Community Federal Credit Union and Amanda
Fung, manager, Chinese Newcomers. The community
partners will help distribute the cookies to taxpayers.
Two community partners will distribute the
cookies: Northeast Community Federal Credit
Union and Chinese Newcomers These
partners help the local community including
seniors and low-income taxpayers with tax
preparation
C&L’s Tax Outreach, Partnership & Education
Branch Chief Christine Footit and Carol Xie,
public affairs specialist (bilingual Chinese),
IRS FY 2022 AGENCY FINANCIAL REPORT
The message inside says Get Help Filing
Taxes for Free: IRS.gov/freefile
Carol also brought some of the cookies to a
Chinese restaurant and bumped into the chef –
chef Martin Yan Carol introduced herself, and
they made a short video about filing taxes
through Free File1
See the recent IRS gov article, Here’s why
IRS Free File is a great value for families2,
to learn more about IRS free file and how it
benefits taxpayers2
1
2
www.irsvideos.gov/?pid=4213
www.irs.gov/newsroom/heres-why-irs-free-file-is-a-great-value-for-families
9
MAnAGeMent's dIsCussIon And AnAlYsIs
Major Program | Strategic Goal 2: ENFORCEMENT
the Irs commits itself to the highest standards in administering and enforcing the tax code with
integrity, transparency and objectivity. the gross tax gap is the difference between taxes owed and
taxes paid on time. taxpayers deserve to know that all taxpayers are accountable to the same tax
laws and pay their fair share. to make progress toward improving voluntary compliance, the Irs will
continue to strengthen enforcement capabilities, improve outreach, proactively work to analyze new
tax requirements and understand taxpayer behaviors and trends. the Irs will also leverage new
technology and data analytics to detect and combat sophisticated evasion techniques and facilitate
timely audits and collection investigations. In FY 2022, the Irs continued to ensure international
tax compliance by assisting taxpayers with understanding how to comply with the law, enhancing
Irs’s enforcement efforts to collect unpaid taxes and collaborating with partners in automatically
exchanging data used for tax compliance purposes. In addition, the Irs began implementing section
80603, Information reporting for Brokers and digital Assets, of the Infrastructure Investment and
Jobs Act, continued prioritizing high-income non-filers and systemically pursuing the most egregious
noncompliant taxpayers to maintain the trust of all taxpayers. the Irs also proactively identified
current and emerging fraud schemes and other threats through cross-collaboration and sharing of
information across different offices. the Irs provided employees extensive on-demand training and
certification using new technologies and tools to expand the depth and breadth of fraud detection
expertise needed to ensure tax compliance in this rapidly evolving area. the Irs enforcement efforts
should successfully narrow the tax gap, build trust with all taxpayers and keep pace with emerging
threats without burdening compliant taxpayers with unnecessary audits.
Enforcement Strategic Goal Results
the Irs exceeded 2 out of 4 of its enforcement KpMs and 3 out of 5 of the KpIs met or exceeded
their prior-year results.
TABLE 3: SUMMARY OF KEY STRATEGIC GOAL RESULTS FOR FY 2018–2022
Strategic Goal Key
Performance Measures/Indicators*
examination efficiency — Individual – B
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Actual
FY 2022
Target
FY 2022
Actual
131
109
76
108
100
101
Met
The sum of all individual 1040 returns closed by SB/SE, W&I and LB&I (Field Exam and Correspondence Exam programs)
divided by the total Full-Time Equivalent expended in relation to those individual returns
time to start Compliance resolution1
(Added in FY 2020) – B, sp
60.1%
60.9%
66.3%
66.0%
no target
set
68.0%
The percentage of all individual income tax enforcement cases started within six months of the return posting date
time to resolve Compliance Issue After
Filing1 (Added in FY 2020) – B, sp
494
469
491
484
no target
set
404
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
B = Budget, SP = Strategic Plan, KPI's have no target set.
Historical data provided for comparative purposes.
2
Results not available and are not included in the total KPI count above. Results will appear in the IRS FY 2024 Congressional Budget Justification and APR&P.
*
1
10
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Strategic Goal Key
Performance Measures/Indicators*
repeat noncompliance rate1
(Added in FY 2020) – B, sp
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Actual
FY 2022
Target
FY 2022
Actual
30.0%
31.4%
35.6%
30.7%
no target
set
n/A2
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
Collection Coverage – B
41.6%
41.3%
34.9%
41.2%
36.5%
38.3%
Met
2,227
no target
set
3,625
The volume of collection work disposed compared to the volume of collection work available
exam starts — high Income Individuals1
(Added in FY 2021) – B, sp
2,307
2,108
2,693
The number of examinations of individual returns with a total positive income of $10 million and above started during the fiscal
year
exam starts — partnerships1
(Added in FY 2021) – B, sp
9,033
5,823
4,106
4,327
no target
set
3,155
1,700
1,490
no target
set
1,366
The number of examinations of partnership returns started during the fiscal year
exam starts — large Corporations1
(Added in FY 2021) – B, sp
2,396
2,009
The number of examinations of large corporate returns reporting assets of $250 million and above started during the fiscal year
Cost to Collect $100 – B
$0.34
$0.33
$0.35
$0.33
no target
set
n/A2
The cost of collecting $100 is computed as total operating costs divided by gross collection divided by 100
Criminal Investigations Completed – B
3,051
2,797
2,624
2,766
2,600
2,552
Not Met
The total number of subject criminal investigations completed during the fiscal year, including those that resulted in prosecution
recommendations to the Department of Justice (DOJ) as well as those discontinued due to a lack of prosecution potential
Criminal Investigations Completed was 2,552 for FY 2022, falling short of the year-end target of 2,600 COVID-19 continues
to impact day-to-day investigative activities, thereby contributing to a higher cycle time for investigations completed Additional
factors such as years of steady decrease in the number of special agents available to work cases (due to attrition and limited
hiring) as well as Criminal Investigation's (CI) continued focus on traditional tax case programs, which tend to have a higher
cycle time, continue to impact overall performance
Conviction rate – B
91.7%
91.2%
90.4%
89.4%
92.0%
90.6%
Not Met
Throughout FY 2022, more U S courts resumed activity in many parts of the country (previously closed or limited by COVID-19
restrictions) thereby accepting more cases from CI than originally anticipated This led to an increase in not only the number of
convictions but also cases acquitted and dismissed, thereby contributing to a slight drop in the Conviction Rate Nevertheless,
COVID-19 continues to limit court availability and impact day-to-day investigative activities in support of the judicial system,
which contributed to fewer cases than normal being adjudicated Additionally, years of steady decrease in the number of special
agents available to work cases, due to attrition and limited hiring, has led to a decline in the total amount of cases initiated and
consequently recommended for prosecution Despite this, appropriate case selection and effective field performance continue
to positively affect the quality of cases resulting in a high rate of convictions Since CI does not prosecute its own cases, it
must depend on the ability of the DOJ to accept its cases for prosecution and to move such cases through the courts CI
management will continue its current efforts of appropriate and consistent contact with DOJ Tax Division and U S Attorney
Offices regarding prosecutorial priorities and the appropriate movement of pipeline investigations to ensure a high rate of
conviction
B = Budget, SP = Strategic Plan, KPI's have no target set.
Historical data provided for comparative purposes.
2
Results not available and are not included in the total KPI count above. Results will appear in the IRS FY 2024 Congressional Budget Justification and APR&P.
*
1
IRS FY 2022 AGENCY FINANCIAL REPORT
11
MAnAGeMent's dIsCussIon And AnAlYsIs
Winners all around at Puerto Rico recruiting event
While attending a recruiting event at Fort
Buchanan near San Juan, Puerto Rico, last
month, SB/SE Deputy Commissioner Darren
Guillot was amazed at the turnout
“The room was packed with military spouses
and veterans waiting to be interviewed,” said
Guillot “I’ve never seen this kind of interest and
this kind of crowd at an IRS recruiting event ”
That interest resulted in a big win for the IRS
in staffing the San Juan Automated Collection
System call site 179 applicants left the event
with a tentative job offer and pre-employment
processing in the works
IRS and military personnel attending agreed
the extensive advertising, highly organized
interview and hiring process, along with on-site
assistance to help applicants navigate online
resources, all worked together to make this
recruitment event a monumental success
Through collaboration with cross functional
partners (e g , HCO, IT, U S Army), a process
that would normally take 180 days or longer, was
reduced to a matter of hours Truly a win for all
That success was also a big win for U S
military personnel stationed at FT Buchanan
This is a labor pool unique in a number of
ways, in particular that they’ve selflessly
given [already] so much to America In a
meeting with Guillot, base leadership noted
the positive effect the joint effort will have
on military families transitioning to civilian life
and the significant infusion of employment
opportunities, as well as economic
development for the Caribbean Island
SB/SE looks forward to continuing the
partnership with FT Buchanan to better serve
taxpayers and IRS employees in Puerto Rico
"The room was packed with
military spouses and veterans
waiting to be interviewed," said
Guillot. "I’ve never seen this kind
of interest and this kind of crowd
at an IRS recruiting event."
Potential IRS employess wait for a job interview at FT Buchanan Puerto Rico recruiting event.
12
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Strategic Goal 3: PEOPLE
the Irs relies on its dedicated workforce and community of partners to provide taxpayers with
quality service and fair enforcement. the Irs is committed to developing its employees by providing
resources, tools and training that will help meet the needs of today and tomorrow. the Irs will
continue to build its workforce using data-driven planning methods to strategically understand future
workforce needs. In FY 2022, the Irs deployed deliberate rebranding, marketing and recruitment
strategies through social media, student and graduate programs and collaboration with unemployment
offices, educational institutions and federal employment programs to prepare for and better support
anticipated hiring. the Irs also integrated human capital and other organizational business strategies
to define emerging processes and capabilities with the goal of designing and delivering workforce
planning capabilities that advance strategic Irs business plans to accomplish the short and long-term
goals of the Irs. the Irs Comprehensive training strategy (Cts) calls for development of a flexible,
responsive and efficient learning organization. to ensure comprehensive, equitable access to learning
and development for all employees, the Irs continues to move forward in implementing Cts as
outlined in the January 2021 Taxpayer First Act Report to Congress (www.irs.gov/pub/irs-pdf/p5426.
pdf). the Irs continues to invest in its people and maintain its partnerships with internal and external
entities in order to better serve taxpayers, improve compliance and accomplish its major programs
and overall mission.
People Strategic Goal Results
the Irs exceeded 1 out of 1 of its people KpMs.
TABLE 4: SUMMARY OF KEY STRATEGIC GOAL RESULTS FOR FY 2018–2022
Strategic Goal Key
Performance Measures/Indicators*
employee engagement Index – sp
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Actual
FY 2022
Target
FY 2022
Actual
67.1%
68.6%
74.2%
73.5%
no target
set
n/A1
The Office of Personnel and Management (OPM) Employee Engagement Index is a measure of the conditions conducive
to engagement The index consists of 15 items grouped into 3 subindices: Leaders Lead, Supervisors, and Intrinsic Work
Experience OPM measures this governmentwide
number of vItA and tCe returns prepared
– sp
3.6M
3.6M
2.5M
2.0M
2.0M
2.2M
Met
The number of individual federal income tax returns prepared by Volunteer Income Tax Assistance (VITA)/Tax Counseling for the
Elderly (TCE) volunteers
B = Budget, SP = Strategic Plan, KPI's have no target set.
Results not available.
*
1
IRS FY 2022 AGENCY FINANCIAL REPORT
13
MAnAGeMent's dIsCussIon And AnAlYsIs
Memphis Campus celebrates 50-year anniversary with
Commissioner Rettig
Awash in a sea of gold, black and white
commemorative t-shirts, Commissioner Chuck
Rettig visited the Memphis Campus to help
them celebrate their 50th anniversary on
September 14, 2022
you today to help you celebrate the Memphis
Campus 50th anniversary,” Rettig noted, “Your
strength, hard work and dedication through the
years is what makes me proud to be your
Commissioner ”
Campus Site Coordinator Mary Ray kicked off
the event and introduced Commissioner Rettig
as the special guest speaker “Since opening
its doors on Democrat Road in January 1972
and moving to the Getwell site in 1996, the
service center has played an integral part of tax
return and payment processing, compliance
and customer service,” Ray said “This is a very
special milestone This campus has existed
since 1972, and it gives me great pleasure
to join the Commissioner in recognizing and
acknowledging our many accomplishments ”
He connected with employees, sharing
heartfelt personal stories that demonstrated
his pride in the military, the IRS, in being an
American and his belief that together we
are stronger “Every person is important
and together we are stronger We live in the
greatest country in the world,” he said
The Commissioner joined Ray on stage and
looked out at all the enthusiastically applauding
employees and managers gathered for the
occasion He said, “I am very honored to join
The Commissioner also talked about how
the employees consistently exceeded annual
donation goals to help those less fortunate
by contributing record-breaking amounts to
the Combined Federal Campaign Memphis
also broke records by donating over 52,000
pounds of food to the Mid-South Food Bank to
help feed hungry families and individuals in the
community
Memphis Campus celebrates 50-year anniversary with Commissioner Rettig
14
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
“When I read the W&I Offline article about your
outstanding success, I reached out to Mary to
extend my congratulations to the campus and
to thank her and her staff for a job well done,”
he shared “Memphis has a great community
inside the IRS Let’s continue to look through
Commissioner Rettig tosses the first shovel of dirt on the
large sealed white capsule filled with notable items.
the eyes of other people as we’re all vital to this
country I want you to know that your health,
safety and well-being are at the forefront of my
thoughts,” he added
In closing, Commissioner Rettig thanked
employees, saying, “From my heart, my
wife and children, thank you for supporting
me on this journey ” He joined employees
for a catered lunch Many stopped by for a
handshake, hug or a kind word, like IT project
manager William Cox Jr
During the event, employees proudly displayed
in their commemorative anniversary t-shirts to
welcome the Commissioner and honor the big
day Angala Hobbs, C&L, won the anniversary
t-shirt contest with her creative design
He later joined current and retired directors,
managers and employees for the time
capsule burial ceremony Memphis Campus
Exam/AUR/ Director Tiffany Vertison-Cole
IRS FY 2022 AGENCY FINANCIAL REPORT
acknowledged visiting community partners like
the United Way of the Mid-South, Mid-South
Food Bank, MIRSC Adopted Schools and the
American Red Cross
IRS Human Capital Officer Kevin McIver and
retired IRS executive Hugh Davis Jr each
talked about how proud they were to be a part
of such a momentous occasion Three
employees with 50 years of service, Verlinda
Campbell, Hattie Jackson Hancock and Cordie
McFarland were recognized and celebrated
The Memphis Campus IRS band, made up of
current and retired employees, was on hand to
play music for the event The celebration
continued throughout the day with a
recognition ceremony, an employee sponsored
boxed luncheon and a reception
"Your strength, hard work
and dedication through
the years is what makes
me proud to be your
Commissioner."
Commissioner Rettig tossed the first shovel of
dirt on the large sealed white capsule filled with
notable items like an Accounts Management
Aspect telephone and headset, a wooden
gavel from Appeals, an alma mater college
banner from the campus Examination acting
director, a tax form from Collections, a copy
of the Memphis Service Center History Book
(1972–1992), photos of some of the current
heads of office and more Various IRS leaders,
a few honorees and other employees took
turns covering the capsule
15
MAnAGeMent's dIsCussIon And AnAlYsIs
Major Program | Strategic Goal 4: TRANSFORMATION
to continue delivering on its mission, the Irs must transform its operations to keep pace with a rapidly
changing world. Implementation of recommendations from the Taxpayer First Act Report to Congress
(www.irs.gov/pub/irs-pdf/p5426.pdf) and updates to the Irs’s modernization portfolio will enable the
Irs to achieve this transformation and not only support taxpayers, but also handle persistent and
sophisticated challenges to tax administration. In FY 2022, the Irs organizational redesign team
worked to create a centralized compliance function geared toward breaking down silos, providing
consistent outcomes for taxpayers and enhancing employee development. the Irs continues to
modernize its technology infrastructure and to develop secure and sustainable solutions to improve
the taxpayer experience and narrow the tax gap through the IRS Integrated Modernization Business
Plan (www.irs.gov/pub/irs-pdf/p5336.pdf), which builds on significant achievements and reflects on an
expanded view of requirements to modernize the Irs technology environment. In FY 2022, the Irs
converted 100% of its core legacy code into a modern programming language — a major milestone in
Irs history. this accomplishment reduces risks to its operating environment and marks a turning point
in the Irs’s journey to modernize its Individual Masterfile, which is the core tax processing system.
the Irs is currently conducting robust testing and parallel processing prior to using the new code for
tax processing. the Irs also continues to implement its enterprise digitalization strategy to streamline
processes and improve access to digital data. Innovative solutions enhance the taxpayer experience
and help the Irs reduce paper volume, increase access to digital data and prepare the Irs workforce
to manage digital data. Also, in FY 2022, the Irs made several improvements in data management
and the application of analytical capabilities, which make operations more efficient, increase
knowledge and increase the selection of appropriate compliance enforcement work among other
operational enhancements.
16
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Secretary Yellen: “The work of the IRS is essential to our
government and our country.”
Treasury Secretary Janet Yellen, right, tours the IRS New Carrolton Federal Building, Thursday, Sept. 15, 2022, in Lanham,
Md. (AP Photo/Alex Brandon)
IRS employees at the New Carrollton Federal
Building (NCFB) hosted Treasury Secretary
Janet Yellen for a special visit Thursday,
September 15 Secretary Yellen toured the
technology facilities at NCFB, calling them
a model for the Information Technology
(IT) modernization needed at the IRS, and
delivered remarks to an in-person and virtual
audience of several thousand employees
After introductory remarks from Deputy
Commissioners Jeff Tribiano and Douglas
O'Donnell, Yellen highlighted the many ways
IRS employees went above and beyond
in recent years, despite being "severely
IRS FY 2022 AGENCY FINANCIAL REPORT
underfunded" with a shrinking workforce She
discussed how the new, transformational IRS
funding contained in the recently signed IRA
will help our agency modernize, increase staff
and ensure all taxpayers pay their fair share "In
all, a strong IRS is critical to the economic
success of this country – and I am heartened
that we are finally reflecting that in our funding
decisions," Yellen said, before thanking all
employees for continuing to make a difference
for American families She ended her visit with
a pledge of support, expressing excitement for
what's to come for the IRS
17
MAnAGeMent's dIsCussIon And AnAlYsIs
Transformation Strategic Goal Results
the Irs exceeded 2 out of 4 of its transformation KpMs.
TABLE 5: SUMMARY OF KEY STRATEGIC GOAL RESULTS FOR FY 2018–2022
Strategic Goal Key
Performance Measures/Indicators*
rentable square Feet per person – B
FY 2018
Actual
FY 2019
Actual
FY 2020
Actual
FY 2021
Actual
FY 2022
Target
FY 2022
Actual
301
298
278
278
270
264
Met
16.0%
9.30%
20.0%
7.1%
Met
n/A
n/A
no target
set
n/A1
The amount of rentable square feet the IRS maintains per person requiring space
percent of Aged hardware – B, sp
45.5%
31.0%
The percentage of all IT hardware in operation that is past its useful life
percent of high-volume Irs notices
Available to be viewed by taxpayers digitally
(Added in FY 2022) – sp
n/A
n/A
The percentage of IRS-issued, high-volume notices made available to be viewed by taxpayers digitally through an IRS Online
Account High-volume (a percentage of notices sent) is defined by weighted criteria based on complexity of the notice, shared
content across notices, business value, taxpayer value and the volume of notices issued to the number of taxpayers
percent of Major It Investments Within +/10% Cost variance at the Investment level
–B
72.2%
88.9%
84.2%
94.1%
90.0%
81.3%
Not Met
Thirteen of 16 major investments were within the cost variance threshold, with 3 programs being out of variance due to
underspend The IRS will continue to closely monitor cost reporting for investments in FY 2023 to improve current performance
levels for this measure
percent of Major It Investments Within +/10% schedule variance at the Investment
level – B
83.3%
88.9%
94.7%
100.0%
90.0%
87.5%
Not Met
Fourteen of 16 major investments were within the schedule variance threshold One investment outside of variance was delayed
and the other was completed early IRS IT will continue to closely monitor schedule reporting for investments in FY 2023 to
improve current performance levels for this measure
*
B = Budget, SP = Strategic Plan, KPI's have no target set.
Results not available.
1
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 goals and priorities, identifying performance measures to fill any
gaps and developing new performance measures to fill those gaps if none exist.
18
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
2. the Irs’s business units use a standard template to document detailed information for each perfor
mance 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
• Business unit
• responsible official
• Formula/methodology for computation
• source of the data
• data limitations
• Management controls
3. the responsible official for the measure is responsible for assessing the completeness, consis
tency, 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.
4. the CFo strategic planning office (spo) reviews quarterly and year-end performance measure
results before sharing the results with senior executives and/or publishing them in treasury and Irs
documents. the spo also independently reviews the performance measure targets and accompa
nying documentation to ensure the targets reasonably reflect allocated funding. If the spo identifies
anomalies, it 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 spo conducts ad-hoc
meetings with business units to discuss topics such as: oversight, responsibilities of ownership,
guidance on measurement and reporting and organizational change. In addition, the spo conducts an
annual Community of practice session focused on measures where business units, treasury contacts
and additional outside speakers can share experiences related to performance measurement.
6. At the end of each fiscal year, the Irs’s deputy performance Improvement officer sends an email to
the performance measures community reminding them of their responsibility for:
• ensuring the quality and accuracy of the performance data.
• reviewing and following Internal revenue Manual (IrM) guidelines when proposing new and
modifying existing measures.
• ensuring there are sufficient controls in place for proper and accurate reporting of their perfor
mance results.
IRS FY 2022 AGENCY FINANCIAL REPORT
19
MAnAGeMent's dIsCussIon And AnAlYsIs
each fiscal year, Irs business unit heads of office submit a signed assurance statement that
describes the effectiveness of internal controls for their areas of responsibility. the assurance
statement identifies any significant deficiencies or weaknesses in internal controls that the Irs
Commissioner should consider when forming their statement, including any issues with the quality of
program data.
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
IRM 1.5.1: The IRS Balanced Performance Measurement System (www.irs.gov/irm/part1/irm_01
005-001).
ENTERPRISE RISK MANAGEMENT
In compliance with the oMB Circular A-123, Management’s responsibility for enterprise risk
Management and Internal Control, the Irs conducts an annual enterprise risk Assessment and
develops an enterprise risk profile. the enterprise risk profile articulates the Irs’s top risks to
achieving its strategic goals. the annual enterprise risk assessment process includes internal and
external environmental scanning activities and a comprehensive aggregation and analysis of business
unit risks.
For three years in a row, Adverse Impact of reduced enforcement on Compliance and Impact and
Implementation of legislation and other requirements have remained in the top six risks on the
risk profile. on August 16, 2022, the president signed the IrA, which includes significant multiyear funding directed toward service delivery, enforcement and modernization. this funding will
substantially affect general Irs operations and enable the Irs to develop strategies previously not
feasible due to years of budget constraints.
this risk profile reflects risks and opportunities associated with initial planning and implementation
of the IrA. As noted in the Commissioner’s Message and elsewhere, the Irs has already begun
developing strategies and establishing project teams to promote responsible stewardship of IrA
funding and effective implementation of all Irs-related provisions. however, such a large increase in
funding combined with external environmental factors, may also create new organizational risks and/
or substantially affect known risks. For example, current unemployment rates may create challenges
in hiring due to the competitive labor market. the people the Irs needs to effectively achieve its
objectives have in-demand skillsets. the Irs will need to effectively recruit, hire, train and retain these
employees to make implementation a success. the ability to address existing inventory, prepare for
the filing season and effectively implement IrA is highly dependent on staffing levels and the timely
implementation of technology applications that reduce manual processing and improve taxpayer
service capabilities.
20
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
the goals in the new Irs strategic plan FY 2022–2026, which directly align with the funding
streams outlined in the IrA, provides the Irs with a significant opportunity to positively impact tax
administration for American taxpayers. By demonstrating that the agency can effectively manage the
associated risk and leverage available resources to improve the taxpayer experience, fairly enforce
tax laws and modernize the business of tax administration, the Irs can strengthen the trust and
confidence of American taxpayers. the top Irs enterprise risks are:
1. Critical Staffing Shortages: the risk that challenges with hiring and backfilling employees,
including those with specialized skills and expertise, coupled with increased attrition, may result in
critical business failures, diminished service to taxpayers, loss of institutional knowledge, depen
dence on contractors and a lack of resilience to events impacting employees' ability to work.
2. 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.
3. Taxpayer Experience: the risk that an inability to execute and improve the customer experience,
combined with increased demand for services, may negatively impact taxpayers’ ability to meet
their tax obligations and erode trust and confidence in the Irs.
4. Employee Engagement and Morale: the risk that a wide range of environmental and cultural
factors, such as: inadequate staffing, employee turnover, insufficient tools, limited relationship
building, insufficient inclusive workplace and a challenging external environment results in poor
employee experience and adversely impacts employee engagement and morale.
5. Impact and Implementation of Legislation and Other Requirements: the risk that failure
to timely and effectively implement an increasing number of complex multi-year legislative and
non-statutory requirements may adversely 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.
6. Cyber and Data Security: the risk that the increased complexity, sophistication and volume
of cyber threats, including insider threats, social engineering, supply chain vulnerabilities and
unauthorized access to or use of sensitive information results in data loss, refund fraud, identity
theft, ransomware or denial of service.
IRS FY 2022 AGENCY FINANCIAL REPORT
21
MAnAGeMent's dIsCussIon And AnAlYsIs
ANALYSIS OF FINANCIAL STATEMENTS
Financial Management Highlights
IRS Management’s Report on Internal Control Over Financial Reporting Fiscal Year 2022
the Irs internal control over financial reporting is a process effected by those charged with
governance, management and other personnel with related responsibilities. 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 (GAAp), 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, 2022, based on
the criteria established under 31 united states Code (u.s.C.) 3512(c) and (d) (commonly known as the
Federal Managers' Financial Integrity Act).
Based on that evaluation, we conclude that as of september 30, 2022, 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 financial reporting systems, which we are actively
addressing.
Charles p. rettig
Commissioner of Internal
revenue
22
Jeffrey J. tribiano
deputy Commissioner,
operations support
teresa r. hunter
Chief Financial officer
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Financial Statement Overview
the financial statements are prepared to report the financial position, financial condition and results
of operations, consistent with the requirements of 31 u.s.C. section 3515(b). the statements are
prepared from records of federal entities in accordance with u.s. GAAp and the formats prescribed by
oMB. reports used to monitor and control budgetary resources are prepared from the same records.
users of the statements are advised that the statements are a component of the federal government.
the Irs is responsible for the administration of tax laws and the custodial collections of taxes for the
federal government. the financial management activities that support the responsibilities of the Irs
are divided into two distinct account categories.
Administrative accounts are included as appropriations and offsetting collections in the statement of
Budgetary resources (sBr). these resources are reflected as assets, liabilities, costs, revenues and
ultimately the net position of the Irs.
Custodial accounts include activity in support of tax collection. the Irs collects the majority of
receipts for the u.s. Government. these receipts are reported in designated custodial accounts
as presented on the statement of Custodial Activity (sCA). Custodial accounts are also included
as custodial Fund Balance with treasury (FBWt) for state Innovation Waiver program (sIWp)
grants, taxes receivable not yet collected and Federal tax refunds payable not yet disbursed on the
Balance sheet.
In FY 2022, the Irs received supplemental funding from the IrA for $79,411 million. the budgetary
resources were appropriated for two-year and ten-year availability. In FY 2022, the Irs obligated
$106 million in IrA supplemental funding.
In FY 2021, the Irs received supplemental funding from the American rescue plan Act 2021 (Arp)
for $1,862 million and the Coronavirus response and relief supplemental Appropriations Act of 2021
(CrrsAA) for $509 million in budgetary resources totaling $2,371 million. the budgetary resources
were appropriated for annual, two-year and three-year availability. In FY 2022, the Irs brought forward
$1,415 million in unobligated balances with $1,155 million being obligated in FY 2022 and $332 million
being brought forward into FY 2023.
Financial statement fluctuations resulting from this activity are discussed in more depth in the
applicable financial statement analysis. Note 21. COVID-19 Activity in the Financial Information
section of this report also provides information for budgetary resources, obligations incurred, the
remaining available budgetary resources and specific note disclosure data for FY 2022 and FY 2021.
IRS FY 2022 AGENCY FINANCIAL REPORT
23
MAnAGeMent's dIsCussIon And AnAlYsIs
Financial Statement Analysis
Analysis of the Balance Sheet
the Balance sheet displays amounts of future economic benefits owned or managed (assets),
amounts owed (liabilities) and the residual amounts (net position) at the end of the fiscal year.
Assets of the Irs primarily comprise Federal taxes receivable, net, FBWt, due from the General Fund
of the u.s. Government, and General property and equipment, net. Comparative asset balances as of
september 30, 2022 and 2021 are presented below.
Assets (in Millions)
Assets
FY 2022
FY 2021
Federal Taxes Receivable,
Net
$236,000
$302,000
Fund Balance with
Treasury
$87,389
$7,062
Due from General Fund of
the U.S. Government
$6,947
$6,248
General Property and
Equipment, Net
$1,795
$1,822 1.5% ▼
$59
$1,522 96.1% ▼
Other
21.9% ▼
1,137.5% ▲
11.2% ▲
$0K
⬛ FY 2022
⬛ FY 2021
$100K
▲ Increase in FY 2022
$200K
$300K
$400K
▼ Decrease in FY 2022
Asset fluctuations in FY 2022 primarily include increased FBWt, decreased Federal taxes receivable,
net and increased due from the General Fund of the u.s. Government.
FBWt increases of $80,327 million are primarily associated with the supplemental appropriations
received from the IrA. due from General Fund of the u.s. Government increased $699 million as
this line item correlates to Federal tax refunds payable, net. Amounts due from 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 $66,000 million in FY 2022 as compared to FY 2021. this
decrease is primarily related to payments on the deferred employer portion of Federal Insurance
Contributions Act (FICA) social security taxes due to the federal government provided under the
Coronavirus Aid, relief, and economic security Act (CAres Act). these deferrals are discussed in
greater detail in Note 5. Federal Taxes Receivable, Net of the Financial Information section of this
report.
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IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Liabilities include Intragovernmental (Accounts payable, due to the General Fund of the
u.s. Government, and other liabilities), Federal tax refunds payable, Federal employee benefits
payable and other liabilities as detailed in Note 8. Other Liabilities of the Financial Information section
of this report.
liability fluctuations in FY 2022 primarily include decreased Intragovernmental liabilities and increased
Federal tax refunds payable.
Liabilities (in Millions)
Liabilities
FY 2022
FY 2021
Intragovernmental
$238,624
$304,258
Federal Tax Refunds
Payable
$6,947
$6,248
Federal Employee
Benefits Payable
$1,003
$1,058 5.2% ▼
Other
$2,235
$2,125 5.2% ▲
21.6% ▼
11.2% ▲
$0K
⬛ FY 2022
⬛ FY 2021
$100K
▲ Increase in FY 2022
$200K
$300K
$400K
▼ Decrease in FY 2022
the decrease in Intragovernmental liabilities is primarily attributable to a decrease of $66,000 million
for the due to the General Fund line on the Balance sheet. this line item is representative of funds that
will be distributed to the General Fund upon collection and is directly attributable to the decrease in
Federal taxes receivable, net.
Federal tax refunds payable increased $699 million primarily due to large corporate tax refunds
that have completed processing and are awaiting additional information to reissue the refunds as of
september 30, 2022.
IRS FY 2022 AGENCY FINANCIAL REPORT
25
MAnAGeMent's dIsCussIon And AnAlYsIs
Net Position consists of unexpended Appropriations and the Cumulative results of operations.
Funds made available by Congress are recorded in unexpended Appropriations. Cumulative results
of operations is the net difference between 1) expenses, losses and transfers out from the inception of
an agency or activity, and 2) financing sources such as appropriations and revenues, and gains from
the inception of an agency or activity (whether financed from appropriations, transfer in, revenues,
reimbursements or any combination of the four) to the reporting date of the financial statements.
unexpended Appropriations increased 2,272% in FY 2022 due to appropriations received from the
IrA.
Net Position (in Millions)
Net Position
FY 2022
FY 2021
Unexpended
Appropriations
$82,049
$3,459
Cumulative Results of
Operations
$1,332
$1,506
2,272.0% ▲
11.6% ▼
$0K $20K
⬛ FY 2022
⬛ FY 2021
▲ Increase in FY 2022
$40K
$60K
$80K
$100K
▼ Decrease in FY 2022
Analysis of the Statement of Net Cost
the snC presents 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 includes
gross costs incurred less exchange revenue earned from user fees and reimbursable agreements.
the total net cost of Irs operations increased $830 million or 6% over the prior fiscal year. the
snC reflects a total of $15,667 million for the period ending september 30, 2022 as compared to
$14,837 million for the period ending september 30, 2021.
the total gross cost for FY 2022 increased by $731 million due primarily to increases in expenses
for consulting services, imputed costs, and payroll and benefits. total earned revenue decreased
$99 million due to decreases in the Income verification express service user fees and the return of
excess current year revenues to the General Fund of the u.s. Government.
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IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
net cost of operations by major program are presented in the table below for the period ending
september 30, 2022. the FY 2022 snC presentation aligns with the FY 2022–2026 Irs strategic plan
and is not comparable to the FY 2021 presentation by major program as detailed in Note 1. Summary
of Significant Accounting Policies.
Net Cost (in Millions)
Major Program
FY 2022
Enforcement of Tax
Legislation
$8,007
Service to the Taxpayer
$6,990
Transformation of Business
Systems
$670
$0K
$2K
$4K
$6K
$8K
⬛ FY 2022
Analysis of the Statement of Budgetary Resources
Irs operations are financed through appropriations, spending authority from offsetting collections and
unobligated balances carried forward.
Appropriations (in Millions)
Appropriation
FY 2022
FY 2021
919.8% ▲
Enforcement
$51,032
$5,004
Operations Support
$29,631
$5,583
Taxpayer Services
$6,038
$3,208
88.2% ▲
Business Systems
Modernization
$5,025
$752
568.2% ▲
$802
Other
430.7% ▲
$353 127.2% ▲
$0K
⬛ FY 2022
⬛ FY 2021
IRS FY 2022 AGENCY FINANCIAL REPORT
▲ Increase in FY 2022
$20K
$40K
$60K
▼ Decrease in FY 2022
27
MAnAGeMent's dIsCussIon And AnAlYsIs
Major Budget Account Descriptions
Enforcement funds the necessary expenses for tax enforcement activities of the Irs to determine
and collect owed taxes, provide legal and litigation support, conduct criminal investigations, enforce
criminal statutes related to violations of internal revenue laws and other financial crimes.
Operations Support funds the necessary expenses of the Irs to support taxpayer services and
enforcement programs, which includes rent payments, facilities services, printing and postage,
physical security, headquarters and other Irs-wide administration activities, research and statistics
of income, telecommunications, information technology development, enhancement, operations,
maintenance and security.
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.
Business Systems Modernization funds the necessary expenses of the Irs's business systems
modernization program for the capital asset acquisition of information technology systems.
Sources of Funds (in Millions)
Source of Funds
FY 2022
FY 2021
Appropriations
$92,528
$14,900
Unobligated Balance from Prior
Year Budget Authority, Net
$2,694
$1,580
Spending Authority from
Offsetting Collections
$154
521.0% ▲
70.5% ▲
$151 2.0% ▲
$0K
⬛ FY 2022
⬛ FY 2021
▲ Increase in FY 2022
$50K
$100K
▼ Decrease in FY 2022
Irs's total budgetary resources increased $78,745 million in FY 2022. this increase was primarily
attributable to appropriations received for IrA totaling $79,411 million. the unobligated balance
from prior year authority, net, increased $1,114 million as it includes the Arp and CrrsAA carryover
funding. the Apportioned, unexpired accounts and unapportioned, unexpired accounts increased by
$78,235 million due to the IrA funding received.
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IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Analysis of the Statement of Custodial Activity
the sCA is the presentation of custodial revenues, appropriations and distributions that occur for
the current and prior fiscal years. this activity is performed on behalf of the federal government.
the custodial appropriations presented on the sCA are not available to the Irs for operational
expenditures and are therefore not included in the presentation of the sBr. Additional information
relative to the fluctuations discussed below is provided in the other Information section of this report.
FY 2022 revenue receipts collected by the Irs totaled $4.9 trillion, an $800 billion increase from
$4.1 trillion in FY 2021. Federal tax revenues are reported in six major classifications: Individual income
taxes (FICA, self-employment Contributions Act (seCA) and other), corporate income taxes, excise
taxes, estate and gift taxes, federal unemployment taxes and railroad retirement taxes. the
$800 billion increase is primarily due to a $383 million increase in individual withholding due to
expiration of the temporary deferral of the employer's portion of social security; an additional
$331 billion due to less tax credits, deductions, and exemptions allowed in filing taxes in 2022; and a
$57 billion increase in corporate receipts due to an increase in taxable income of C corporations.
Custodial Revenue (in Billions)
Tax Class
FY 2022
FY 2021
Individual Income
$4,308
$3,595
Corporate Income
$476
$419
Excise
$71
$58 22.4% ▲
Estate and Gift
$33
$28 17.9% ▲
Federal Unemployment
$7
$6 16.7% ▲
Railroad Retirement
$6
$6 0.0%
19.8% ▲
13.6% ▲
$0K
⬛ FY 2022
⬛ FY 2021
▲ Increase in FY 2022
$2K
$4K
$6K
▼ Decrease in FY 2022
the sCA also presents refunds and outlays made by the Irs on behalf of the federal government.
refund and outlay activities were $642 billion for the period ending september 30, 2022, as compared
to $1.1 trillion for the period ending september 30, 2021. the 42% decrease was primarily driven by
the economic Impact payment (eIp) amounts refunded in FY 2021. only the recovery rebate amounts
from the eIps were refunded in FY 2022 under the CAres Act, CrrsAA, and the Arp, which included
provisions to help stimulate the economy through eIp and/or recovery rebate Credit payments.
Federal tax refunds and outlay activities include refunds of tax overpayments, payments for interest,
and disbursements for refundable tax credits such as the earned Income tax Credit (eItC).
IRS FY 2022 AGENCY FINANCIAL REPORT
29
MAnAGeMent's dIsCussIon And AnAlYsIs
Unpaid Assessments
under federal accounting standards, federal taxes receivable are unpaid assessments the taxpayer or
court has agreed to. unpaid assessments not agreed to by taxpayers or the courts are categorized as
compliance assessments and assessments that have no future collection potential are categorized as
write-offs. Compliance assessments and write-offs are not included on the balance sheet as federal
taxes receivable.
(In Billions)
2022
2021
UNPAID ASSESSMENTS
Federal Taxes Receivable
Compliance (Amounts not agreed to by taxpayer or courts)
Write-offs (No future collection potential)
$
437
88
77
$
493
80
85
Total Unpaid Assessments
$
602
$
658
the decrease in total unpaid assessments is $56 billion when compared to september 30, 2021. the
decrease in total unpaid assessments is primarily due to the decrease in social security tax deferral
amounts (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 financial statements 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 due at a future point in time and include IrC section
965(h) amounts, for repatriated foreign earnings, and CAres Act related social security tax deferral
balances.
(In Billions)
2022
2021
FEDERAL TAXES RECEIVABLE, GROSS
Nondelinquent 965h Unpaid Assessments
Nondelinquent Social Security Tax Deferral Unpaid Assessments
Delinquent Unpaid Assessments
Delinquent Restitution Based Unpaid Assessments
$
140
51
243
3
$
158
106
227
2
Federal Taxes Receivable, Gross
$
437
$
493
Collectability Modeling and Economic Conditions
social security tax deferrals decreased $55 billion during FY 2022. the Irs treated these deferrals as
collectable unless there was specific evidence otherwise, as year two amounts are not due until FY
2023. Indicators of financial health were manually reviewed for publicly traded businesses with large
dollar IrC section 965 amounts due. the analysis determined that large dollar IrC section 965(h)
taxpayers are primarily in a favorable long-term economic position to make their future payments. For
delinquent unpaid assessments, collectability reflects existing economic conditions of the taxpayers’
ability to pay.
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IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
the total Federal taxes receivable, net, excludes the estimated uncollectible amount of $201 billion as
of september 30, 2022 and $191 billion as of september 30, 2021. examples of uncollectible taxes
include taxpayers who agree they owe the tax but are unlikely to pay and businesses with extreme
financial hardships. overall collectability combines separate collectability calculations for delinquent
taxes receivable IrC section 965(h) amounts, social security tax deferrals and restitution-based
assessments (rBAs).
Estimated Collectability: Federal Taxes Receivable Gross and Net
(In Billions)
As of September 30, 2022
Collectability
Nondelinquent 965h Unpaid Assessments
Nondelinquent Social Security Tax Deferral Unpaid
Assessments
Delinquent Unpaid Assessments
96.5%
Gross
$
140
Net
$
135
90.7%
51
47
21.9%
246
54
Federal Taxes Receivable, Gross and Net
$
(In Billions)
As of September 30, 2021
Collectability
Nondelinquent 965h Unpaid Assessments
Nondelinquent Social Security Tax Deferral Unpaid
Assessments
Delinquent Unpaid Assessments
Federal Taxes Receivable, Gross and Net
IRS FY 2022 AGENCY FINANCIAL REPORT
90.6%
437
$
Gross
$
158
236
Net
$
143
99.9%
106
106
23%
229
53
$
493
$
302
31
MAnAGeMent's dIsCussIon And AnAlYsIs
ANALYSIS OF SYSTEMS, CONTROL AND LEGAL COMPLIANCE
Federal Managers’ Financial Integrity Act (FMFIA)
Background
the FMFIA requires executive branch agencies to establish and maintain internal control and financial
systems to provide reasonable assurance that:
• obligations and costs comply with applicable laws.
• Funds, property and other assets are safeguarded against waste, loss, unauthorized use or
misappropriation.
• revenues and expenditures applicable to agency operations are properly recorded and
accounted for to permit the preparation of accounts and reliable financial and statistical reports,
and to maintain accountability over the assets.
oMB Circular A-123 provides implementing guidance for FMFIA and defines management’s
responsibility for establishing and assessing internal controls. the Circular also requires federal
agencies to adhere to the Government Accountability office's (GAo) standards for Internal Control in
the Federal Government, and to evaluate and report on the effectiveness of the organization’s internal
controls to achieve: (1) the objectives of effective and efficient operations, (2) reliable reporting for
internal and external use and (3) compliance with applicable laws and regulations (FMFIA section 2).
Additionally, agencies are required to assess whether financial management systems comply with
federal financial management systems requirements (FMFIA section 4).
Analysis of Controls
the Commissioner’s Assurance statement is supported by a comprehensive risk-based internal
control evaluation plan that adheres to treasury guidance. this plan includes a methodology
that identifies and documents key controls and provides for the assessment and testing of those
controls to provide reasonable assurance that the controls are designed, implemented and operating
effectively. As part of the evaluation process, the Irs considered results of this extensive testing and
assessment across the Irs.
Internal Control over Reporting
In accordance with oMB Circular A-123, Appendix A, Management of reporting and data Integrity
risk, the Irs also assessed internal controls over reporting. the Irs applied treasury’s Appendix A
guidance to assess the effectiveness of its internal control 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 concluded that as of september 30, 2022,
the Irs’s internal control over financial reporting was effective. In addition to the financial statements,
GAo issues an opinion on Internal Control over Financial reporting. the Irs Management's report on
Internal Control over Financial reporting provides those assurances.
32
IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
Federal Financial Management Improvement Act of 1996 (FFMIA) and Financial Management
Systems
the FFMIA requires federal agencies to implement and maintain financial management systems that
substantially comply with federal financial management systems requirements, applicable federal
accounting standards, and the u.s. standard General ledger (ussGl) at the transaction level. As
described in oMB Circular A-123, Appendix d, “a financial management system includes an agency’s
overall financial operation, reflecting the people, processes, and technology to capture, classify,
summarize, and report data in a meaningful manner to support business decisions.”
the FFMIA section 803(c)(1) requires an annual determination of substantial compliance with section
803(a) of the Act based on review of relevant factors. to support this determination, the Irs assesses
its financial management systems annually for conformance with the requirements of oMB Circular
A-123, Appendix d, Compliance with the FFMIA and other federal financial management system
requirements. our assessment process includes the use of the FFMIA Compliance determination
Framework, (Compliance Framework) in oMB Circular A-123, Appendix d, which is a risk and
evidence-based assessment model that leverages existing audits, evaluations and reviews that
auditors and agency management already perform. the Compliance Framework is an outcome-based
approach to assessing FFMIA compliance through a series of financial management goals that are
common to all agencies.
In applying the Compliance Framework, the Irs assesses available information from audit reports
and other relevant and appropriate sources, such as the Federal Information security Modernization
Act compliance activities, to determine whether our financial management systems substantially
comply with FFMIA. the Irs also assesses improvements and ongoing efforts to strengthen financial
management systems and the impact of instances of noncompliance on overall financial management
system performance. Based on the results of our overall assessment, the Irs concluded that its
financial management systems were not substantially compliant with federal financial management
system requirements as of september 30, 2022, due to significant deficiencies.
the Irs has two significant deficiencies in internal control over financial reporting related to its unpaid
assessments and financial reporting systems. specifically, these deficiencies relate to (1) limitations
in the ability of Irs’s financial management systems to classify unpaid assessments and report taxes
receivable in accordance with federal accounting standards and (2) Irs’s information system security
controls related to financial reporting systems. the Irs worked diligently during FY 2022 to continue
to enhance its It security posture and continues to implement a strategy and assessment process to
verify the effectiveness of internal controls for the financial systems that affect the financial statements.
this assessment supports the Irs’s overall internal control framework and helps mitigate deficiencies
in the It environment.
IRS FY 2022 AGENCY FINANCIAL REPORT
33
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 two major components.
the redesigned revenue Accounting Control system (rrACs) is a custom-built software database
used to account for and summarize all Irs custodial tax transactions and activities. the Irs uses
rrACs to record, control, account for, reconcile and balance all custodial accounting activity
including tax payment collections and refunds, receivables, appropriation warrants, refundable tax
credits and other transactional custodial activities on behalf of the federal government. rrACs
specifically supports the Irs custodial responsibilities to ensure the accuracy and completeness of tax
collections, disbursements and related activities in its financial reports and records.
the Integrated Financial system (IFs) is comprised of three Commercial off the shelf sAp software
components: the erp Central Component, procurement for public sector and Business Warehouse
(BW). IFs interfaces with multiple systems, including, but not limited to, Internet payment platform,
ConcurGov, MovelInQ and national Finance Center (nFC) systems. IFs provides the Irs with
comprehensive automated functionality that supports financial and administrative program
management. Its software provides automated functionality for significant administrative business
processes including core financials, procurement, intragovernmental transactions, purchase card
activities, and budget formulation and execution. IFs also provides robust cumulative reporting
capabilities by merging data from all sub-systems in BW.
during FY 2022, Irs implemented several system improvements including:
• system for Award Management (sAM) unique entity Identifier as a replacement for the data
universal numbering system number to verify federal contractors.
• sAp and BW software upgrades.
• systemwide technical and cybersecurity upgrades.
• Automation for maintaining digital documentation of goods receipt and acceptance transactions
and processes for recording and summarizing transactions related to Arp (dependent Care
Assistance, rrC).
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IRS FY 2022 AGENCY FINANCIAL REPORT
MAnAGeMent's dIsCussIon And AnAlYsIs
the Irs will build upon successes of FY 2022 with the vision that fully articulates the goals and
objectives of the Irs’s strategic plan. 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 our workforce using data-driven planning to strategically understand future workforce needs. It
is important for us 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. Within the next five years, the Irs plans to
continue to enhance financial management systems including:
• strengthening G-Invoicing, which is the long-term solution for federal agencies to manage intragovernmental buy/sell transactions within a web-based application.
• Advancing transparency across systems with expanded data analytics capabilities.
• Building core systemic functionality to support financial accounting program changes related to
the IrA and the Creating helpful Incentives to produce semiconductors Act.
• enhancing the IFs functional capability platform with technical upgrades.
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 Antideficency Act.
IRS FY 2022 AGENCY FINANCIAL REPORT
35
MAnAGeMent's dIsCussIon And AnAlYsIs
MANAGEMENT ASSURANCES
the Irs’s management is responsible for managing risks and maintaining effective internal control and
financial management systems to meet the objectives of FMFIA. We conducted our assessment of risk
and internal controls in accordance with oMB Circular A-123.
Based on our assessment, we can provide reasonable assurance that, in accordance with section
2 of the FMFIA, the Irs’s internal control over operations, reporting and compliance with laws and
regulations were operating effectively as of september 30, 2022. 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, 2022, we are in substantial
conformance with the federal financial management systems requirements of section 4 of the FMFIA,
except for two significant deficiencies related to unpaid assessments and financial reporting systems.
As a result of these significant deficiencies, our financial management systems are not in substantial
compliance with the FFMIA as of september 30, 2022. We continue to make progress in remediating
these deficiencies and remain committed to focusing management’s attention and resources on
appropriate corrective actions. overall, we continue our efforts to ensure high standards, minimize
internal control weaknesses and meet federal financial management requirements. Additional
information on the deficiencies can be found in other Information, section A.
Charles p. rettig
Commissioner of Internal revenue
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IRS FY 2022 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 we have for continuing to improve in
the future.
the new dedicated funding from the Inflation reduction Act will go toward tangible improvements
that taxpayers will experience when they interact with the Irs. the Irs will improve customer service,
answer more calls, process returns and refunds faster, update computer systems and simplify tax
filing. the Irs will also continue building online capabilities to enable taxpayers to interact more fully
with the Irs digitally. these resources will also enable the Irs to increase audits of high-income
taxpayers and collect taxes from those who have not paid their balances due. ultimately, this will help
ensure a fair tax system, as well as simpler tax filing for taxpayers.
Building on our successes in implementing other major legislative bills, the Irs’s new IrA
transformation & Implementation office will work across the Irs and oversee our implementation
efforts. Given the wide scope of the new legislation, four subsidiary offices will support the new
office and will focus on specific areas: implementation of new tax law provisions, taxpayer services
transformation, tax compliance transformation and human capital transformation. this funding will also
build upon and expand our existing Irs next initiative to revitalize and build a stronger, more modern
organization for the next generation.
the Irs has a great deal of hard work ahead to deliver on the high expectations prompted by
its receipt of this historic funding. this is a multi-year effort, and it will take time to put these
improvements into place. however, Irs employees are up to the task and will deliver for the nation as
they have countless times before in the history of the Irs.
IRS FY 2022 AGENCY FINANCIAL REPORT
37
page Intentionally left Blank
WE’RE COMMITTED TO CONTINUOUSLY
IMPROVING OUR SERVICE TO ENSURE THE
TAX PROCESS IS EASY AND ACCESSIBLE
AND WORKING WITH THE TAX COMMUNITY
TO IMPROVE THE EXPERIENCE "
– Doug O'Donnell, Deputy Commissioner for Services and Enforcement
FINANCIAL SECTION
IRS FY 2022 AGENCY FINANCIAL REPORT
39
page Intentionally left Blank
FInAnCIAl InForMAtIon
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
I am pleased to join Commissioner rettig in presenting the Irs’s Agency
Financial report, which carries with it the Irs tradition of fiscal integrity
and commitment to ensuring strong financial management. We received
the 23rd consecutive unmodified opinion on our financial statements.
external auditors also issued an unmodified opinion on the effectiveness
of our internal control over financial reporting. We continue to be diligent
in our efforts to resolve the two significant deficiencies identified in prior
years affecting internal controls over unpaid assessments and financial
reporting systems and the related noncompliance.
the Irs financial management operations oversaw more than
$4.9 trillion in tax collections, $642 billion in federal tax refunds and
other outlays and $602 billion in unpaid assessments, as well as the
resources that support the mission of the Irs. I am proud that the stewardship of our operations is
a clear demonstration of the commitment we share toward our mission of leading the Irs’s financial
management with integrity and accountability through expert planning and sound financial advice,
ensuring an excellent customer experience.
With sound operations, we are well-prepared to support the Irs operations with the new funding from
the IrA, which allocates $79.4 billion through 2031. these funds will be used to add important and
critical resources to our tax enforcement, taxpayer service and technology areas to help close the tax
gap and improve taxpayer service.
looking ahead in FY 2023, our objectives are to continue to innovate our processes, increase capacity
and enhance efficiency, accuracy, data analytics and on demand reporting to support critical decision
making. We continue to support a culture of curiosity and promote resilient, agile and sound financial
management operations to continue our tradition of excellence in financial reporting and being
prepared for the future while embracing innovative practices.
I want to thank the entire CFo staff for their continued innovation, hard work, resilience and dedication
to the Irs and public service. I’m proud of all that we’ve accomplished and look forward to another
great year.
sincerely,
teresa r. hunter
Chief Financial officer
november 7, 2022
IRS FY 2022 AGENCY FINANCIAL REPORT
41
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 2022 and 2021 financial statements of the Internal Revenue
Service (IRS), we found
•
IRS’s financial statements as of and for the fiscal years ended September 30, 2022, and
2021, 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, 2022; and
•
no reportable noncompliance for fiscal year 2022 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 paragraph related
to 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,
2022, and 2021; 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
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 OMB Bulletin 22-01, Audit Requirements for Federal Financial Statements, app. B (Aug. 26,
2022).
42
IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
respects, IRS’s financial position as of September 30, 2022, and 2021, and its net cost of
operations, changes in net position, budgetary resources, and custodial activity for the fiscal
years then ended in accordance with U.S. generally accepted accounting principles.
Opinion on Internal Control over Financial Reporting
We also have audited IRS’s internal control over financial reporting as of September 30, 2022,
based on criteria established under 31 U.S.C. § 3512(c), (d), commonly known as the Federal
Managers’ Financial Integrity Act (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, 2022, based on criteria established under FMFIA. Our
fiscal year 2022 audit continued to identify significant deficiencies in internal control over
financial reporting concerning IRS’s unpaid assessments and financial reporting systems.4 We
considered these significant deficiencies in determining the nature, timing, and extent of our
audit procedures on IRS’s fiscal year 2022 financial statements.
Although the significant deficiencies in internal control did not affect our opinion on IRS’s fiscal
year 2022 financial statements, misstatements may occur in unaudited financial information
reported internally and externally by IRS because of these significant deficiencies.
In addition, because of the significant deficiencies in internal controls over unpaid assessments
and financial reporting systems that existed during fiscal year 2022, 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 internal control
over financial reporting systems separately to IRS management, along with recommendations
for corrective actions. In addition to the significant deficiencies in internal control over unpaid
assessments and financial reporting systems, we also identified other deficiencies in IRS’s
internal control over financial reporting that we do not consider to be material weaknesses or
significant deficiencies. Nonetheless, these deficiencies warrant IRS management’s attention.
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 OMB Circular No. A-123, app. D, Compliance with the Federal Financial Management
Improvement Act of 1996, § 4.A (Sept. 20, 2013).
IRS FY 2022 AGENCY FINANCIAL REPORT
43
FInAnCIAl InForMAtIon
We have communicated these matters to IRS management and, where appropriate, will report
on them separately.
Significant Deficiency in Internal Control over Unpaid Assessments
During fiscal year 2022, 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 determine a balance that was free of material misstatement.8 During
fiscal year 2022, IRS recorded adjustments totaling about $18.5 billion to correct the effects of
continued errors in its underlying data that it identified during its estimation process. While using
this process to determine a material portion of taxes receivable has enabled IRS to produce
reliable related balances for year-end reporting, it does not provide IRS management with
readily available, reliable unpaid assessment information on a daily basis throughout the year
for effectively managing unpaid assessment balances. Further, errors in taxpayer accounts
create a burden for those taxpayers whose accounts were affected.
While not collectively considered a material weakness, IRS’s ongoing control deficiencies
related to unpaid assessments are important enough to merit attention by those charged with
governance of IRS. Therefore, these issues collectively represent a significant deficiency in
IRS’s internal control over financial reporting as of September 30, 2022. 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.
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 (Mar. 3, 2021).
7See GAO, Financial Audit: IRS’s FY 2021 and FY 2020 Financial Statements, GAO-22-104649 (Washington, D.C.:
Nov. 10, 2021).
8In fiscal year 2022, IRS’s reported federal taxes receivable consisted of a combination of three distinct types of taxes
receivable with different internal control and accounting processes in place: amounts derived from (1) IRS’s unpaid
assessments statistical estimation process; (2) the Section 965(h) repatriation of foreign earnings provision of the Tax
Cuts and Jobs Act of 2017, Pub. L. No. 115-97, § 14103, 131 Stat. 2054, 2195-2208 (Dec. 22, 2017), which is
codified at 26 U.S.C § 965; and (3) taxpayer deferral of the employer’s share of Social Security taxes and certain selfemployment taxes permitted by the CARES Act, Pub. L. No. 116-136, div. A, tit. II, § 2302, 134 Stat. 281, 351-52
(Mar. 27, 2020), which is reprinted in 26 U.S.C. § 3111 note.
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FInAnCIAl InForMAtIon
Significant Deficiency in Internal Control over Financial Reporting Systems
During our fiscal year 2022 audit, we determined that information system security control
deficiencies—primarily unresolved deficiencies identified in prior audits—collectively represent a
significant deficiency in IRS’s internal control over financial reporting. These control deficiencies
relate to general controls.9
IRS mitigated the potential effect of the identified control deficiencies primarily through
compensating controls that management has designed to detect potential misstatements on the
financial statements. Nevertheless, these deficiencies increase the risk of unauthorized access
to, modification of, or disclosure of sensitive financial and taxpayer data and disruption of critical
operations and are therefore important enough to merit the attention of those charged with
governance of IRS.
IRS made progress in addressing certain information system security control deficiencies. For
example, IRS addressed deficiencies in (1) the identification and authentication of user and
service accounts, (2) certain configuration settings, and (3) security management.10 However,
deficiencies continue to exist as of September 30, 2022. For example, deficiencies exist
concerning encryption and improper configuration of security settings. While IRS has expressed
its intent to address unresolved deficiencies in fiscal year 2023, continued and consistent
management commitment and attention are essential to addressing existing deficiencies and
continually improving IRS’s information system security 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
This matter deserves emphasis in order 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
9General controls help to provide reasonable assurance that access to data is appropriately restricted, physical
access to sensitive computing resources and facilities is restricted, systems are securely configured to avoid
exposure to known vulnerabilities, and incompatible duties are segregated among individuals. In addition, controls
should ensure that backup and recovery plans are adequate and tested to ensure the continuity of essential
operations and that security is managed entity-wide under a framework that provides a continuing cycle of activity for
assessing risk, developing and implementing effective security procedures, and monitoring the effectiveness of these
procedures.
10Identification is the process of verifying the identity of a user, process, or device, usually as a prerequisite for
granting access to resources in an information system. Authentication establishes the validity of a user’s claimed
identity, typically during access to a system or application. Security management establishes a framework and
continuous cycle of activity for assessing risk, developing and implementing effective security procedures, and
monitoring the effectiveness of these procedures.
IRS FY 2022 AGENCY FINANCIAL REPORT
45
FInAnCIAl InForMAtIon
without sufficient payment, or a court ruling in favor of IRS. Consistent with federal accounting
standards, IRS’s 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,11 nor do they include information on tax expenditures.12 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
IRS management is responsible for (1) the preparation and fair presentation of these financial
statements in accordance with U.S. generally accepted accounting principles; (2) preparing,
measuring, and presenting the RSI in accordance with U.S. generally accepted accounting
principles; (3) preparing and presenting other information included in IRS’s financial report, and
ensuring the consistency of that information with the audited financial statements and the RSI;
(4) 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; (5) assessing the effectiveness of internal
control over financial reporting based on the criteria established under FMFIA; and (6) its
assessment about the effectiveness of internal control over financial reporting as of September
30, 2022, included in the accompanying Management’s Report on Internal Control over Financial
Reporting on page 22.
Auditor’s Responsibilities for the Audits of the Financial Statements and Internal Control over
Financial Reporting
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and about whether
effective internal control over financial reporting was maintained in all material respects, and to
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 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.
11The tax gap arises when taxpayers, whether intentionally or inadvertently, fail to (1) accurately report tax liabilities
on tax returns (underreporting), (2) pay taxes due from filed returns (underpayment), or (3) file required tax returns
altogether or on time (nonfiling). Based on its most recent study, which relied on 2014–2016 data, IRS estimated the
average annual gross tax gap to be $496 billion. IRS estimated it would eventually collect $68 billion of that amount
through late payments and enforcement actions, leaving an estimated net tax gap of $428 billion per year.
12Tax 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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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
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 in order to obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
•
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.
Definition and Inherent Limitations of Internal Control over Financial Reporting
An entity’s internal control over financial reporting is a process effected by those charged with
governance, management, and other personnel, the objectives of which are to provide
reasonable assurance that (1) transactions are properly recorded, processed, and summarized
to permit the preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and assets are safeguarded against loss from unauthorized acquisition,
use, or disposition, and (2) transactions are executed in accordance with provisions of
applicable laws, including those governing the use of budget authority, regulations, contracts,
and grant agreements, noncompliance with which could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent, or
detect and correct, misstatements due to fraud or error. We also caution that projecting any
IRS FY 2022 AGENCY FINANCIAL REPORT
47
FInAnCIAl InForMAtIon
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, which consisted of inquiries of
management about the methods of preparing the RSI and comparing the information for
consistency with management’s responses to the auditor’s inquiries, the financial statements,
and other knowledge we obtained during the audit of the financial statements, in order to report
omissions or material departures from FASAB guidelines, if any, identified by these limited
procedures. We did not audit and we do not express an opinion or provide any assurance on
the RSI because the limited procedures we applied do not provide sufficient evidence to
express an opinion or provide any assurance.
Other Information
IRS’s other information contains a wide range of information, some of which is not directly
related to the financial statements. This information is presented for purposes of additional
analysis and is not a required part of the financial statements or the RSI. Management is
responsible for the other information included in IRS’s financial report. The other information
comprises certain tax-related and management information, but 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.
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 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 2022 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.
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
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. Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for Tests of Compliance section below.
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 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.
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 7, 2022
IRS FY 2022 AGENCY FINANCIAL REPORT
49
FInAnCIAl InForMAtIon
ENCLOSURE: IRS RESPONSE TO THE INDEPENDENT AUDITOR'S
REPORT
November 7, 2022
Ms. Dawn B. Simpson
Director
Financial Management and Assurance
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548
Dear Ms. Simpson:
Thank you for the opportunity to comment on the draft report titled, Financial Audit:
IRS's Fiscal Years 2022 and 2021 Financial Statements. We are pleased the IRS
received an unmodified opinion on its combined financial statements and there are no
material weaknesses. The unmodified opinion demonstrates that the IRS accurately
accounts for tax revenue receipts, tax refunds and IRS appropriated funds.
We appreciate the GAO recognizing our successful efforts, and we look forward to
working with you to resolve the remaining two significant deficiencies in internal
controls over unpaid assessments and financial reporting systems. We have made
noteworthy progress in reducing the open recommendations and will continue to
focus our efforts to improve financial management in our agency.
The IRS’s ability to produce reliable financial statements each year is due to the efforts
of our outstanding management team and staff. We are dedicated to promoting the
highest standard of financial management, and we look forward to working with the
GAO to continue providing accurate reporting and improving our internal controls.
Sincerely,
Charles P. Digitally signed
by Charles P.
Rettig
Rettig
Charles P. Rettig
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
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) (p.l.), the Government Management reform Act of 1994 (p.l. 103-356) and the oMB Circular
no. A-136, Financial reporting requirements. the responsibility for the integrity of the financial
information included in these statements is with the management of the Irs. the audit of the Irs
financial statements was performed by GAo.
the Irs financial statements for FY 2022 and FY 2021 are:
• the Balance sheets present the assets, liabilities and net position.
• the statements of net Cost present the gross costs less exchange revenue earned from activ
ities and the net cost of operations. the FY 2022 snC presentation aligns with the Irs strategic
plan FY 2022–2026 and is not comparable to the FY 2021 presentation by major program. the
current and prior year presentation of this statement are separately provided.
• the statements of Changes in net position (sCnp) 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 2022 AGENCY FINANCIAL REPORT
51
FInAnCIAl InForMAtIon
Balance Sheets
As of September 30, 2022 and 2021
(in Millions)
2022
2021
ASSETS
Intragovernmental
Fund Balance with treasury (Notes 2, 3)
$
87,389
$
7,062
Accounts receivable, net
Advances and prepayments
other Assets
due From General Fund of the u.s. Government (Note 3)
39
1
34
10
6,947
6,248
Total Intragovernmental
94,376
13,354
With the Public
Cash and other Monetary Assets (Note 4)
Accounts receivable, net
Federal taxes receivable, net (Notes 3, 5, 7)
other receivables, net
General property and equipment, net (Note 6)
Advances and prepayments
Inventory and related property, net
4
1,459
236,000
6
1,795
9
–
302,000
9
1,822
9
1
Total with the Public
237,814
305,300
Total Assets
$
332,190
$
318,654
$
–
$
6
LIABILITIES
Intragovernmental
Accounts payable
other liabilities
due to General Fund of the u.s. Government (Note 7)
other liabilities (Note 8)
238,407
217
304,058
194
238,624
304,258
With the Public
Accounts payable
Federal tax refunds payable
other payables
Federal employee Benefits payable (Note 9)
other liabilities (Note 8)
6,947
15
1,003
2,220
6,248
3
1,058
2,122
Total with the Public
10,185
9,431
Total Liabilities
248,809
313,689
Total Intragovernmental
Commitments And Contingencies (Note 12)
NET POSITION
Unexpended Appropriations
Funds From other than dedicated Collections
82,049
3,459
Cumulative Results of Operations
Funds From dedicated Collections (Note 13)
Funds From other than dedicated Collections
181
1,151
206
1,300
total Cumulative results of operations
1,332
1,506
83,381
Total Net Position
Total Liabilities and Net Position
$
332,190
4,965
$
318,654
The accompanying notes are an integral part of these statements.
52
IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
Statements of Net Cost
For the Years Ended September 30, 2022 and 2021
(in Millions)
2022
MAJOR PROGRAMS
Service to the Taxpayer
Gross Cost
$
earned revenue
7,085
(95)
net Cost of program
6,990
Enforcement of Tax Legislation
Gross Cost
earned revenue
8,441
(434)
net Cost of program
8,007
Transformation of Business Systems
Gross Cost
earned revenue
675
(5)
670
net Cost of program
Net Cost of Operations
$
15,667
The accompanying notes are an integral part of these statements.
2021
MAJOR PROGRAMS
Taxpayer Assistance and Education
Gross Cost
$
earned revenue
542
(1)
541
net Cost of program
Filing and Account Services
Gross Cost
earned revenue
5,882
(146)
net Cost of program
5,736
Compliance
Gross Cost
earned revenue
8,914
(486)
net Cost of program
8,428
Administration of Tax Credit Programs
Gross Cost
132
net Cost of program
132
Net Cost of Operations
$
14,837
The accompanying notes are an integral part of these statements.
IRS FY 2022 AGENCY FINANCIAL REPORT
53
FInAnCIAl InForMAtIon
Statement of Changes in Net Position
For the Years Ended September 30, 2022
(in Millions)
2022
Consolidated
Funds From
Dedicated
Collections
Consolidated
Funds From
Other Than
Dedicated
Collections
Consolidated
Total
UNEXPENDED APPROPRIATIONS
Beginning Balances
$
–
$
3,459
$
3,459
Appropriations Received
–
92,005
92,005
Appropriations Transferred In/Out
–
30
30
Other Adjustments
Appropriations Used
–
–
(74)
(13,371)
(74)
(13,371)
Net Change
–
78,590
78,590
Total Unexpended Appropriations, Ending Balances
–
82,049
82,049
Beginning Balances
Appropriations Used
Non-exchange Revenue
Transfers In/Out Without Reimbursement
Imputed Financing (Note 14)
Transfers To General Fund of the U.S. Government
206
–
90
–
2
–
1,300
13,371
–
26
2,008
(4)
1,506
13,371
90
26
2,010
(4)
Net Cost of Operations
(117)
(15,550)
(15,667)
Net Change
(25)
(149)
(174)
Total Cumulative Results of Operations, Ending Balances
181
1,151
1,332
CUMULATIVE RESULTS OF OPERATIONS
Net Position
$
181
$
83,200
$
83,381
The accompanying notes are an integral part of these statements.
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
Statement of Changes in Net Position
For the Years Ended September 30, 2021
(in Millions)
2021
Consolidated
Funds From
Dedicated
Collections
Consolidated
Funds From
Other Than
Dedicated
Collections
Consolidated
Total
UNEXPENDED APPROPRIATIONS
Beginning Balances
$
–
$
2,005
$
2,005
Appropriations Received
–
14,290
14,290
Other Adjustments
Appropriations Used
–
–
(63)
(12,773)
(63)
(12,773)
Net Change
–
1,454
1,454
Total Unexpended Appropriations, Ending Balances
–
3,459
3,459
Beginning Balances
Appropriations Used
Non-exchange Revenue
Transfers In/Out Without Reimbursement
Imputed Financing (Note 14)
Transfers To General Fund of the U.S. Government
126
–
110
–
3
–
1,419
12,773
–
31
1,885
(4)
1,545
12,773
110
31
1,888
(4)
Net Cost of Operations
(33)
(14,804)
(14,837)
Net Change
80
(119)
(39)
Total Cumulative Results of Operations, Ending Balances
206
1,300
1,506
CUMULATIVE RESULTS OF OPERATIONS
Net Position
$
206
$
4,759
$
4,965
The accompanying notes are an integral part of these statements.
IRS FY 2022 AGENCY FINANCIAL REPORT
55
FInAnCIAl InForMAtIon
Statements of Budgetary Resources
For the Years Ended September 30, 2022 and 2021
(in Millions)
2022
2021
BUDGETARY RESOURCES
Unobligated Balance From Prior Year Budget Authority, Net
$
Appropriations (Discretionary and Mandatory)
Spending Authority From Offsetting Collections (Discretionary and Mandatory)
Total Budgetary Resources
2,694
$
1,580
92,528
14,900
154
151
$
95,376
$
16,631
$
14,570
$
14,071
STATUS OF BUDGETARY RESOURCES
New Obligations and Upward Adjustments (Total)
Unobligated Balance, End of Year
Apportioned, unexpired Accounts
exempt From Apportionment, unexpired Accounts
unapportioned, unexpired Accounts
34,338
7
46,196
2,296
7
3
unexpired unobligated Balance, end of Year
80,541
2,306
expired unobligated Balance, end of Year
265
254
Unobligated Balance, End of Year (Total)
80,806
2,560
Total Budgetary Resources
$
95,376
$
16,631
$
13,855
$
13,293
$
13,543
$
12,923
OUTLAYS, NET
Outlays, Net (Total) (Discretionary and Mandatory)
Distributed Offsetting Receipts
Agency Outlays, Net (Discretionary and Mandatory)
(312)
(370)
The accompanying notes are an integral part of these statements.
56
IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
Statements of Custodial Activity
For the Years Ended September 30, 2022 and 2021
(in Billions)
2022
2021
REVENUE ACTIVITY
Collections of Federal Tax Revenue (Note 17)
Individual Income, FICA, seCA and other
$
4,308
$
3,595
Corporate Income
476
419
excise
71
58
estate and Gift
33
28
railroad retirement
Federal unemployment
6
7
6
6
4,901
4,112
(66)
66
Total Collections of Federal Tax Revenue
(decrease)/Increase in Federal taxes receivable, net
Total Federal Tax Revenue
$
4,835
$
4,178
Distribution of Federal Tax Revenue Due To General Fund of the U.S.
Government
$
4,901
$
4,112
(decrease)/Increase in Amount due
(66)
4,835
Total Disposition of Federal Tax Revenue
Net Federal Revenue Activity
66
$
4,178
–
$
642
$
–
FEDERAL TAX REFUND AND OUTLAY ACTIVITIES
Total Refunds of Federal Taxes and Outlays (Note 18)
$
Appropriations Used For Refund of Federal Taxes and Outlays
Net Federal Tax Refund and Outlay Activities
(642)
$
–
1,138
(1,138)
$
–
The accompanying notes are an integral part of these statements.
IRS FY 2022 AGENCY FINANCIAL REPORT
57
FInAnCIAl InForMAtIon
NOTES TO THE FINANCIAL STATEMENTS
For the Years Ended September 30, 2022 and 2021
Note 1. Summary of Significant Accounting Policies
A. Reporting Entity
the Irs is a bureau of the treasury. the Irs originated in 1862, when Congress established the office
of the Commissioner of Internal revenue. the Irs administers the nation’s tax laws and annually
collects the tax receipts funding the federal government. the organizational divisions and programs
within the Irs contribute to this achievement.
B. Basis of Accounting and Presentation
the financial statements have been prepared from the accounting records of the Irs in conformity
with u.s. GAAp and in accordance with oMB Circular no. A-136, Financial reporting requirements.
Accounting principles for federal entities are the standards prescribed by the Federal Accounting
standards Advisory Board, which is the official body for setting accounting standards of the federal
government.
the accounting structure of federal agencies is designed to reflect both accrual and budgetary
accounting transactions. under the accrual method of accounting, revenues are recognized when
earned and expenses are recognized when incurred, without regard to receipt or payment of cash.
Budgetary accounting facilitates compliance with legal constraints and controls over the use of
federal funds. the sCA is presented on the modified cash basis of accounting. under this method,
cash collections and transfers to the General Fund of the u.s. Government are reported on a cash
basis. the collections and transfers are adjusted on the face of the sCA for the net change in taxes
receivable, producing modified cash basis balances.
the preparation of financial statements in conformity with u.s. GAAp requires management to make
certain estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses
and the disclosure of contingent liabilities. Actual results could differ from these estimates. estimates
are used in computing tax receivables, allocation of costs to strategic goals in the snC, year-end
accruals for payables and actuarial liabilities. Actual results could differ from these estimates.
Certain assets, liabilities, earned revenues and costs have been classified as intragovernmental in
the financial statements and notes. Intragovernmental is defined as transactions made between two
reporting entities within the federal government.
Accounting standards require all reporting entities to disclose that accounting standards allow certain
presentations and disclosures to be modified, if needed, to prevent the disclosure of classified
information.
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
C. Fund Balance with Treasury
the FBWt is an asset of a reporting entity and a liability of the General Fund of the u.s. Government.
the amounts represent commitments by the federal government to provide resources for certain
programs, but do not represent net assets to the federal government.
When the Irs seeks to use the FBWt to liquidate budgetary obligations, treasury will finance the
disbursements in the same way it finances all other disbursements, using some combination of
receipts, other inflows and borrowing from the public (if there is a budget deficit).
D. Accounts Receivable, Net
Accounts receivable, net, are due to the Irs from federal agencies and the public. With the public,
Accounts receivable, net are reported as other receivables on the balance sheet. Intragovernmental
receivables include an expenditure transfer receivable from the treasury Forfeiture Fund for the
repayment of costs incurred in criminal investigations related to seizure and forfeitures. reimbursable
agreements with Federal agencies are recorded as receivables and revenues are recognized as
services are performed and costs are incurred.
receivables with the public include reimbursable agreements and payroll receivables collected by
the nFC. these receivables are the Irs and nFC pay adjustments due to duplicate salary payments,
salary overpayments, overdrawn leave, leave buybacks under workers’ compensation and federal
employees health benefit payments.
the allowance for uncollectible accounts is based on an annual review of groups of accounts by age
for accounts receivable balances older than one year.
E. Federal Taxes Receivable, Net
the Irs reduces its taxes receivable amount by an allowance to report the amount of Federal taxes
receivable, net, on its Balance sheets. the allowance reflects an estimate of the portion of total taxes
receivable deemed to be uncollectible.
Accruals are made to reflect penalties and interest on taxes receivable through the Balance sheet
date. the majority of the due to General Fund of the u.s. Government balance is the offsetting liability
of Federal taxes receivable, net.
taxes receivable consist of unpaid assessments (taxes, associated penalties and interest) due from
taxpayers. the existence of a receivable is supported by a taxpayer agreement, such as filing of a
tax return without sufficient payment, or a court ruling in favor of the Irs. rBAs, to compensate the
federal government for revenue losses caused by tax-related crimes, including conspiracy to defraud
Irs and tax evasion, federal courts may order rBAs against defendants, are included in the taxes
receivable balance. the IrC section 965(h) requires u.s. shareholders to pay a transition tax on
the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been
IRS FY 2022 AGENCY FINANCIAL REPORT
59
FInAnCIAl InForMAtIon
repatriated to the u.s. this provision allowed taxpayers to elect to pay their transition tax on an eightyear installment schedule. the CAres Act, section 2302, contains a provision which allows employers
to defer payment, without penalty, of the entire amount of the employer’s share of the social security
portion of FICA. this also includes the employer’s and employee representative’s share of the railroad
retirement tax. the deferred amount is due in two installments with 50% due as of december 31,
2021, and the remaining amount by december 31, 2022.
Other Unpaid Assessments
Compliance assessments are unpaid assessments which neither the taxpayer nor a court has
affirmed is owed to the federal government. this includes assessments resulting from an Irs audit
or examination in which the taxpayer does not agree with the results. Write-off assessments consist
of unpaid assessments for which the Irs does not expect further collections due to factors such as
taxpayers’ bankruptcy, insolvency, or death. Compliance assessments and write-off assessments
are not reported on the balance sheets. statutory provisions authorize the Irs to collect on unpaid
assessments for a specific statutory timeframe. to pursue collections and account for collection
efforts, the Irs maintains unpaid assessment accounts in the financial records until the statute for
collection expires.
Tax Assessments
under IrC section 6201, the secretary of the treasury is authorized and required to make inquiries,
determinations and assessments of all taxes imposed and accrued under any internal revenue law,
which have not been duly paid, including interest, additions to the tax and assessable penalties.
the secretary of the treasury has delegated this authority to the Commissioner of the Irs. unpaid
assessments result from taxpayers filing returns without sufficient payments and from the enforcement
programs of the Irs, such as examination, under-reporter, substitute for return and combined annual
wage reporting.
Abatements
IrC section 6404 authorizes the Commissioner of the Irs to abate certain paid or unpaid portions of
assessed taxes, interest and penalties. Abatements occur for several reasons and are a standard part
of the tax administration process. Abatements may be allowed for qualifying corporations claiming net
operating losses that create a credit when carried back and applied against a prior year’s tax liability.
Additionally, abatements can correct previous assessments from enforcement programs, eliminate
taxes discharged in bankruptcy, reduce, or eliminate taxes encompassed in offers-in-compromise,
eliminate penalty assessments for reasonable cause, eliminate contested assessments caused by
mathematical or clerical errors and eliminate assessments contested after the liability has been
satisfied. Abatements may result in claims for refunds or reductions of the unpaid assessed amounts.
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
F. Cash and Other Monetary Assets
Imprest funds are maintained by headquarters and field offices in commercial bank accounts. other
monetary assets consist primarily of offers-in-compromise, voluntary deposits received from taxpayers
pending application of the funds to unpaid tax assessments and seized monies pending the results of
criminal investigations.
G. General Property and Equipment
General property and equipment are recorded at historical cost. they consist of tangible and intangible
assets, including software. At a minimum, disposals are recorded at year-end.
In FY 2021, the Irs changed its capitalization policy to expense acquisitions of laptop/desktop,
furniture and end user software regardless of the amount. prior to FY 2021, these categories were
capitalized if they met the capitalization threshold of $50 thousand.
In FY 2022, the Irs changed its depreciation policy and calculates depreciation on a straight-line basis
using the in-service date. prior to FY 2022, except for leases meeting the 75% useful life and/or 90%
of net present value criteria, depreciation was calculated on a straight-line basis over the estimated
useful life using a half year convention in the first and final year of the estimated useful life. leases
were depreciated over the life of the lease; there is no change to the treatment of leases in FY 2022.
IRS Capitalization Policy
Asset Class
Capitalization Threshold
It equipment (Mainframe, server & telecommunication)
Bulk cost of $50 thousand or greater.
non-It equipment
Assets with bulk cost of $50 thousand or greater
and the individual cost is $5 thousand or greater.
Investigative equipment
Bulk cost of $50 thousand or greater.
vehicles
no threshold.
Internal use software (Ius)
projects with an estimated cost of greater than or
equal to $10 million per year or greater than or equal
to $50 million over the life cycle.
leasehold improvements (lhI)
Improvements with bulk cost of $50 thousand or
greater.
Assets under capital lease
Assets with bulk cost of $50 thousand or greater.
H. Advances and prepayments
Intragovernmental advances and prepayments include postage purchased from the united states
postal service (usps) for postage meters, business reply mail, bulk mailing permits, stamps and
postage paid envelopes. the usps requires payment for the postage in advance. Advances and
prepayments to the public represent cash outlays for criminal investigations and employee travel.
IRS FY 2022 AGENCY FINANCIAL REPORT
61
FInAnCIAl InForMAtIon
I. Inventory and Related Property
Forfeited property held for sale is acquired as a result of forfeiture proceedings or foreclosure sales
to satisfy a tax liability. the Federal tax lien revolving Fund, established in accordance with title 26
u.s.C. section 7810, is used to redeem real property foreclosed upon by a holder of a lien. the Irs
may sell the property, reimburse the revolving fund in an amount equal to the redemption and apply
any net proceeds to the outstanding tax obligation.
J. Due to General Fund of the U.S. Government
due to General Fund of the u.s. Government comprises two sources, Federal taxes receivable, net,
and sIWp. the portion of the liability for Federal taxes receivable is to be distributed to the General
Fund of the u.s. Government upon collection. the portion of the liability for the sIWp are awards by
the Centers for Medicare and Medicaid services (CMs), under section 1332 of the patient protection
and Affordable Care Act, where the grantees participating in the program have not drawn down the
funds per the term of the grant. the program is also referred to as a state relief and empowerment
Waiver.
K. Federal Tax Refunds Payable and Due from General Fund of the U.S.
Government
Federal tax refunds payable comprises measurable and legally payable amounts due to taxpayers
under established refund processes of the Irs. It is a fully funded liability offset by a corresponding
asset, due from General Fund of the u.s. Government. the Irs records an amount due from General
Fund of the u.s. Government to designate approved funding to pay year-end tax refund liabilities to
taxpayers.
L. Financing Sources and Revenues
Appropriations Received
the Irs receives most of its funding through annual, multi-year and no-year appropriations available
for use within statutory limits for operating and capital expenditures. Appropriations are presented as a
budgetary financing source on the sCnp.
Exchange Revenue
exchange revenue is recognized when earned and is derived from transactions where both the
government and the other party receive value. the Irs exchange revenue represents reimbursements,
user fees and collections of outstanding inactive tax receivables. reimbursements are recognized
as the result of costs incurred for services performed for federal agencies or the public under
reimbursable agreements. user fees are from transactions with the public and are generally recognized
when earned. the private Collection Agencies program has the authority to procure qualified tax
collection contracts for private collection contractors to perform the collection of outstanding inactive
tax receivables from the public. A portion of the collections are retained for cost of services performed
through the contracts.
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
Non-exchange Revenue
non-exchange revenue results from the government’s power to demand payments from the public.
the special Compliance personnel program has a specifically, identifiable, legally enforceable claim to
a portion of the collections from outstanding inactive tax receivables to fund the administration of the
program.
Imputed Financing Source
the Irs receives goods and services from other federal entities at no cost or at less than the full
cost to the providing entity. When costs are identifiable to the Irs, these amounts are recognized
as imputed costs in the snC and as an imputed financing source on the sCnp. Imputed financing
sources include Bureau of the Fiscal service (Fiscal service) costs of processing tax payments
and collections, employee benefits administered by opM and claims to be settled by the treasury
Judgement Fund.
M. Programs
the snC major programs, in FY 2022, present the strategic goals which align to the Irs mission
of delivering high quality taxpayer service and fair enforcement of the tax law. the cause for this
change in presentation is the implementation of the Irs strategic plan FY 2022–2026. the FY 2021
Irs mission areas by major programs are not comparable to the FY 2022 Irs mission areas by major
programs.
FY 2022 Major Programs
Service to the Taxpayer includes activities and programs, such as printing forms and publications,
processing tax returns and related documents, offering filing and account services, taxpayer
assistance, providing taxpayer advocacy services and supporting activities. earned revenues include
reimbursable revenues for services provided and user fees including several services performed
including photocopies, u.s. residency certifications and Income verification express service.
Enforcement of Tax Legislation includes the examination of tax returns, both domestic and
international; administrative and judicial settlement of taxpayer appeals of examination findings;
technical rulings; monitoring of employee pension plans; determination of qualifications of
organizations seeking tax-exempt status; examination of tax returns of exempt organizations;
enforcement of statutes relating to detection and investigation of criminal violations of the internal
revenue laws; identification of underreporting of tax obligations; securing of unfiled tax returns;
collection of unpaid accounts; and supporting activities. earned revenues are primarily from user fees
for installment agreements, letter rulings and determinations, offers in compromise, enrolled agent and
actuary programs, return preparer registrations, advance pricing agreements, services provided from
reimbursable revenues and the private Collection Agencies program.
Transformation of Business Systems includes resources for the planning and capital asset
acquisition of It to modernize the Irs business systems. primary activities include expanding
online account capabilities to improve the taxpayer experience, improving individual tax processing
technologies, streamlining case and workload management processes and promoting cybersecurity.
IRS FY 2022 AGENCY FINANCIAL REPORT
63
FInAnCIAl InForMAtIon
FY 2021 Major Programs
Taxpayer Assistance and Education provides services to assist taxpayers with tax return
preparation. primary activities include tax law interpretations, developing and disseminating tax forms
and publications, researching customer needs and establishing partnerships with stakeholder groups
and taxpayer advocacy. In addition, these programs continue to emphasize taxpayer education,
outreach and enhancing pre-filing taxpayer support through electronic media. earned revenues include
reimbursable revenues for services provided.
Filing and Account Services provides resources and support services to taxpayers with filing returns
or paying taxes and for the issuance of refunds and maintenance of taxpayer accounts. program
activities include assistance, education and compliance services to taxpayers through telephone,
correspondence and electronic means to resolve account and notice inquiries. earned revenues
include reimbursable revenues for services provided and user fees for several services performed
including photocopies, u.s. residency certifications and Income verification express service
disclosures.
Compliance administers compliance activities after a return is filed to identify and correct possible
errors or underpayments. this program includes examination and collection programs, which ensure
proper payment and tax reporting; criminal investigation programs to uncover violations of internal
revenue tax laws and other financial crimes; the development and printing of published Irs guidance
materials; and support of taxpayers for pre-filing agreements, determination letters and advance
pricing agreements. It also includes specialty program examinations, international collections and
international examinations. earned revenues are primarily from user fees for installment agreements,
letter rulings and determinations, offers in compromise, enrolled agent and actuary programs, return
preparer registrations, advance pricing agreements and for services provided from reimbursable
revenues and the private Collection Agencies program.
Administration of Tax Credit Programs primarily administers the eItC program, which works closely
with internal and external stakeholders through expanded customer service and public outreach,
enforcement and research efforts to increase the number of eligible taxpayers who claim the eItC and
to reduce the number of eItC claims paid in error. eItC payments refunded to individuals or credited
against tax liabilities are not included in program costs.
N. Custodial Activity
Revenues
the Irs collects custodial non-exchange revenues for taxes levied against taxpayers for: individual
and corporate income, FICA, seCA, excise, estate, gift, railroad retirement and federal unemployment
taxes. these collections are not available to the Irs for obligation or expenditure and are recognized
as custodial revenues when collected. the sources of federal tax revenue and their distribution to the
General Fund of the u.s. Government are reported on the sCA.
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IRS FY 2022 AGENCY FINANCIAL REPORT
FInAnCIAl InForMAtIon
Appropriations
the Irs was granted permanent and indefinite budgetary authority through legislation to disburse tax
refund principal and related interest as they become due. the permanent and indefinite appropriations
are not subject to budgetary ceilings set by Congress during the annual appropriation process.
refunds due to taxpayers are reported as Federal tax refunds payable on the Balance sheets. the Irs
recognizes an offsetting asset, due from General Fund of the u.s. Government, to reflect the year-end
budget authority to pay this liability.
disbursements for tax refunds, refundable tax credits and other outlays, reported on the sCA, are
offset by appropriations used for refunds. disbursements for refunds are not a cost to the Irs, but
rather a cost to the federal government as a whole.
O. Funds from Dedicated Collections
Funds from dedicated Collections are specifically identified revenues, often supplemented by other
financing sources, which remain available over time. these specifically identified revenues and other
financing sources are required by statute to be used for designated activities, benefits, or purposes
and must be accounted for separately from the federal government’s general revenues.
P. Allocation Transfers
the Irs is a party to allocation transfers with other federal agencies as both a transferring (parent)
entity and a receiving (child) entity. Allocation transfers are legal delegations by one federal entity
of its authority to obligate budget authority and outlay funds to another federal entity. A separate
fund account (allocation account) is created in treasury as a subset of the parent fund account for
tracking and reporting purposes. All allocation transfers of balances are credited to this account
and subsequent obligations and outlays incurred by the child entity are charged to this allocation
account as they execute the delegated activity on behalf of the parent entity. Financial activity related
to these allocation transfers is reported in the financ
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